QNB Forecasts Slowing GDP Growth for China in 2018 and 2019

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Doha, May 16 (QNA) - QNB said today in its China Economic Insight 2018 report that Potential GDP growth is on a downward trend due to demographic headwinds (working age population peaked in 2014), and slowing productivity.
The bank added in the report that GDP growth edged higher to 6.9 percent in 2017 from 6.7 percent in 2016 on the back of robust external demand, marking the first acceleration in annual growth since 2010. The report said that QNB's forecast sees GDP growth slowing to 6.4 percent in 2018 and 6.1 percent in 2019 on the back of policy tightening measures designed to cool the property market, reign in leverage in the shadow banking sector, and cutting excess capacity in old industries such as steel and aluminum.
The report noted that the current account surplus is forecast to continue narrowing to 1 percent of GDP in 2018 and 0.9 percent of GDP in 2019 on the back of higher oil prices, and still robust domestic demand driving import growth.
QNB said also it expects the authorities to keep the Yuan broadly stable against the trading partner basket in 2018 and 2019, which implies an appreciation of just fewer than 4 percent against the U.S. dollar. We believe the authorities will view this as striking an appropriate balance between the need to maintain a competitive exchange rate, while avoiding trade frictions with the U.S. authorities against whom China maintains a large trade surplus. They also expect a modest fiscal consolidation over the next two years as the central government tightens rules on the ability of local governments to participate in Public-Private Partnerships (PPPs) to build local infrastructure.
The augmented fiscal deficit, which incorporates significant local government spending and revenue operations that are off-budget, should decline to 12.1 percent of GDP in 2018 and 2019. Bank deposit growth should stabilize at 8.2 percent in 2018 and 2019, similar to the level in 2017 as they begin to compete more aggressively with money market funds. QNB's bank credit growth will stabilize at around 10 percent, despite a slowing economy and higher lending rates. As the authorities crack down further on shadow lending, banks are increasingly bringing previously off balance sheet forms of lending (to nonbank financial institutions) back onto their balance sheets. This should underpin bank credit growth for the next couple of years. (QNA)