UBS sees growth slowing to 6.1%

China’s economic growth will slow to 6.1 percent this year from 6.5 percent last year, with the Sino-US trade war a major headwind, UBS says in its latest forecast.

“The US-China trade war and the uncertainties it brings may still be the biggest challenge that the Chinese economy is facing in 2019, with the annual gross domestic product growth expected to be 6.1 percent this year, 0.4 percentage points slower than the 6.5 percent GDP forecast for 2018,” Wang Tao, chief China economist and head of Asian economic research at UBS, said yesterday.

“Taking into account the price factors, especially that the producer price index is still under downward pressure, nominal GDP growth in China will also slow down in 2019.

“Looking back on 2018, policies such as deleveraging did put some downward pressure on our economy, but it was a process of self-adjustment,” Wang said.

That self-adjustment included tightening of credit and liquidity, and also the stricter control of local government debt — through public–private partnership project scrutiny and lower local government bond issuance.

As a result, one of the most obvious features of last year was the decline in infrastructure investment.

“However, the (credit and liquidity) policy has gradually loosened since August and September last year, and the growth rate of infrastructure investment, which had slumped sharply, has also rebounded again,” Wang said. “Also, despite some negative influence of the deleveraging policies on liquidity, shadow credit has declined as a positive result.”

If the government wants to achieve stable growth in the short term, Wang said, it still needs to rely on infrastructure investment, which she expects to grow at least 10 percent this year.

Wang says China will continue its policy of reform and opening-up, especially for foreign investment and private enterprises. And she expects further increases in liquidity.

The People’s Bank of China announced on January 4 that it will cut the reserve requirement ratio of financial institutions by 1 percentage point.

“I think there will be at least 2 percentage points of further reduction,” said Wang.