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China’s Growth Outlook Is Gloomy, Trade War Escalates

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China’s growth outlook

On June 5, the IMF lowered China’s 2019 GDP growth forecast from 6.3% to 6.2%. Kenneth Kang, the deputy director of the Asia-Pacific department at the IMF, spoke with CNBC. He said, “The renewed trade tensions are a significant source of uncertainty and a downside risk to our outlook.” Kang also said, “But I think we need to wait a few more months.”

The IMF expects the Chinese economy to slow down more next year. The IMF expects China’s GDP to rise 6% in 2020. China is targeting 6.0%–6.5% growth for 2019. The country’s first-quarter GDP rose 6.4%, which beat analysts’ estimates.

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Brokerages’ views

Morgan Stanley lowered China’s growth forecast from 6.5% to 6.4%. Morgan Stanley also lowered its forecast for the US and global growth in 2019. In April, several brokerages turned bullish on the Chinese economy and raised their growth forecasts. Barclays raised China’s 2019 growth forecast from 6.2% to 6.5%. ING raised China’s forecast to 6.5% from 6.3%. Citi raised China’s 2019 growth forecast from 6.2% to 6.6%. Citi said, “Our new baseline scenario is that a framework trade deal between the U.S. and China will be reached in (the second quarter) and it will lift most, if not all, existing punitive tariffs.”

US-China talks

However, after months of hectic negotiations, we’ve seen a breakdown in the US-China trade talks. President Trump raised the tariffs on Chinese goods. He accused China of reneging its previous commitments. When the trade war escalated in May, US stocks came under pressure and the S&P 500 (SPY) fell 6.6%. Apple (AAPL) and Amazon (AMZN) saw a negative price action of 12.7% and 7.8%, respectively, last month. Chinese stocks like Alibaba (BABA) also saw massive losses in May.

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