July 15, 2019 | SQUARED DIRECT – Chinese economic data for the second quarter of the year are showing minimal growth for the Chinese Economy with the GDP contracting to 6.2 percent, 0.2 percent lower than the 6.4 percent of the previous quarter and 0.4 percent lower than the 6.6 percent of 2018 full year. While still growing, there is an evident decline in the rate of growth making it the slowest growth rate of the Chinese Economy in 27 years.
Analysts are saying that weak exports, a decline in housing construction and other indicators of investor sentiment together with uncertainty from the aftermath of the trade war with the US are contributing to the decline of the growth rate. Additionally, the trade war has offset any attempt by the Chinese government to stimulate the economy domestically.
Analysts views on Chinese market
Indicators for domestic consumption and domestic industrial output rose to higher levels in June than they were the previous month despite a heavily ‘tariffed’ manufacturing sector however, it might not be enough to counter or prevent the economic growth decline. Some analysts are viewing the rise in domestic consumption and production as positive signs for stabilization of the economy in the long run but future economic data are required before that conclusion is reached.
Liquidity issues have also taken their toll, specifically the government takeover of Baoshang Bank has affected credit conditions for private businesses. Smaller-scale banks and lending institutions are struggling because of short-term borrowing costs falling to their lowest level since the global financial crisis.
Analysts are expecting that weaker economic data for q2 will see more attempts by the Chinese government to ease monetary policy and infrastructure spending even further but ultimately it all depends on what the stimulus package will be and how it will be implemented. Some analysts said that they would be monitoring Chinese employment figures closely for a more concise evaluation of the Chinese economy.
There are worries that a steeper decline of the economy, specifically a slowdown of exports and imports could raise serious risks of supply-chain effects that could negatively affect the rest of Asia and ultimately cause further slowdown of the Global Economy that could possibly lead to recessions and even another financial crisis. It falls on the Chinese Government to make the necessary moves that could ensure that the world’s second largest economy doesn’t slow down too quickly so they could potentially avoid severe economic repercussions domestically, continentally and globally.
Reaction of the Markets
- Global stocks rose higher after Chinese growth data met expectations
- CSI 300 Shanghai and Shenzen-listed stocks traded 0.3 percent higher
- Top gainers in the CSI300 were technology firms, consumer businesses and industrials
- Hong Kong Hang Seng benchmark gained 0.1 percent
- Offshore renminbi strengthened by 0.1 percent to Rmb 6.8744 per dollar
- Equity market was supported by domestic retail sales/consumption growth
Trading in Forex and Contracts for Difference (CFDs), which are leveraged products, is highly speculative and involves a high level of risk. Therefore, Forex and CFDs may not be suitable for all investors because it is possible to lose all invested capital. Only invest with money you can afford to lose. Before deciding to trade, you need to ensure that you understand the risks involved. Seek independent advice if necessary. Please refer to our Risk Disclaimer.