China: Three Factors To Watch In 2018

Growth, Trade And Government Spending

China’s economy grew by 6.8% year over year in the fourth quarter of 2017, bringing the year’s overall growth to 6.9%—higher than 2016’s 6.7%. So what is next for China in 2018?

While there are risks to the country’s economic outlook—such as high debt private levels and policy mistakes—we’re taking a closer look at what to watch things to watch in 2018.

According to Roubini Global Economics, there are three swing factors to watch in 2018: factory prices, the domestic economy and external trade risks. Here, the balance of risks seems tilted to the upside rather than the downside. The targeted, government-led construction spending has supported demand and commodity prices.

Therefore factory price reflation, industrial profits and GDP growth will likely remain supported. “We also believe that domestic growth will stay resilient even as China tightens policy measures,” Jeff Ng, Asia-Pacific economist with Roubini Global Economics wrote in a note to clients. “Trade will likely pose the biggest downside risk, but it may be the least important swing factor among the three to watch. Our current base case is for 6.5% GDP growth in 2018, with upside risk.”

With growth momentum likely to be maintained, China’s economy will be generally supportive of domestic equity, foreign exchange and global fixed income markets. The emphasis on higher-quality growth implies a positive outlook for private consumption, exports and the services industries, even as the headline print and other sectors (such as manufacturing) slow from the elevated levels seen in 2017.