China Economy Expected to Slow Down over Weak Domestic Demand

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China is set to report on Monday that economic growth cooled to its slowest in 28 years in 2018 amid weakening domestic demand and bruising US tariffs, adding pressure on Beijing to roll out more support measures to avert a sharper slowdown.

China bustling city

Increasing signs of weakness in China, which has fueled nearly a third of global growth in the past decade, are stoking worries about risks to the world economy and are weighing on profits for firms ranging from Apple to big carmakers.

Chinese policymakers have promised more support for the economy this year to reduce the risk of massive job losses, but they have ruled out a “flood” of stimulus like that which Beijing has done before, which rapidly juiced growth rates but left the country with a mountain of debt.

Analysts surveyed expect the world’s second biggest economy to have grown 6.4 percent in the October-December quarter from a year earlier, slowing down from the previous quarter’s 6.5 percent and matching levels last seen in early 2009 during the global financial crisis.

That could pull 2018 gross domestic product (GDP) growth to 6.6 percent, the lowest since 1990 and down from a revised 6.8 percent in 2017.

With stimulus measures expected to take some time to kick in, most analysts believe conditions in China are likely to get worse before they get better and see a further slowdown to 6.3 percent this year. Some analysts believe that the real growth levels are already much weaker than official data indicate.

Even if China and the United States agree on the trade deal in the present talks, which is a tall order, analysts said that it would be no panacea for the sputtering Chinese economy unless Beijing can galvanize weak investment and consumer demand.

Cheng Xingdong, who is chief China economist at BNP Paribas said that investors should not expect the latest round of stimulus to produce similar results as during the 2008-09 global financial crisis, when China’s huge spending package quickly bolstered growth.

“What China can really do this year is to prevent deflation, prevent a recession and  a hard landing in th economy,” said Chen.

On a quarterly basis, growth likely eased to 1.5 percent in Oct-Dec from 1.6 percent in the previous period.

China will release its fourth-quarter and 2018 GDP data on Monday, along with December factory output, retail sales and fixed-asset investment.

Since China’s quarterly GDP readings tend to be unusually steady, most investors choose to focus on recent trends.

Surprising contractions in December trade data and factory activity gauges in recent weeks have suggested the economy cooled more quickly than expected at the end of 2018, leaving it on a more turbulent footing at the beginning of the New Year.

According to some sources, Beijing was planning to lower its growth target to 6-6.5 percent this year from around 6.5 percent in 2018.

closeup shot chinese currency yuan

Tepid expansion in industrial output and weaker consumer spending is squeezing companies’ profit margins, discouraging fresh investment and raising the risk of higher job losses.

Some factories in Guangdong, which is considered China’s export hub, have shut earlier than usual ahead of the long Lunar New Year holiday as the tariff war with the United States curtails orders. Others are suspending production lines and cutting back on the workers’ working hours.

If the trade war continues, some migrant workers may not have jobs to return to.

Trade negotiators are facing an early March deadline and Washington has threatened to sharply hike tariffs if there are no substantial indications of progress.