China Economic Outlook: Q4 2018

Escalating trade war and slowdown in consumption worsen outlook

The slowdown in growth of global trade and higher US tariffs have raised the importance domestic demand for the economy, with consumption accounting for 78% of GDP growth in 2018.

However, consumption growth has also slowed down, and fixed investment growth has declined below 6%.

In our baseline forecast, GDP increases by 6.5-6.7% in 2018, by 5.6-6.6% in 2019 and by 5.2-6.6% in 2020. Our long-term annual economic growth forecast for 2021-2025 remains 4.8-5.8%. Baseline forecast probability: 20-30% 1-year ahead.

China’s economy gradually slowed down in 2018, with average Q1-Q3 growth of 6.7%.

Rising trade tensions with the US and the associated uncertainty have been key factors in the worsening outlook. In September, the US imposed 10% tariffs on another USD200 billion of imports from China, rising to a 25% tariff in 2019.

As a result, we have reduced our GDP growth forecast for 2019 by 0.2 percentage points.