First off....China -> China Economic growth dipped to a 27-year low in the second quarter, and the economy likely conti...

India & China Update

First off....China ->

Economic growth dipped to a 27-year low in the second quarter, and the economy likely continues to falter in Q3 amid the trade war with the U.S. Throughout January–July, investment growth slowed, while, in July, industrial production expanded at a near two-decade low and retail sales growth moderated. Meanwhile, in mid-August, the U.S. postponed imposing a 10% tariff on some Chinese consumer products from 1 September to 15 December, which should aid exports ahead of the Christmas season. In the same month, the IMF applauded the government during an Article IV visit for strengthening financial regulations, continuing to open up the economy and tightening control over local government expenditure to reduce the speed of debt accumulation; however, the Fund also noted that further reforms regarding state-owned enterprises are needed in order to increase competition and improve credit allocation.

Uncertainty linked to the trade war with the U.S. will continue to weigh on the economy, while weak global demand and domestic economic imbalances pose further risks to the outlook. Nevertheless, fiscal stimulus and accommodative monetary policy should buttress the economy and make the government’s 6.0–6.5% growth target for this year attainable. FocusEconomics panelists see the economy growing 6.2% in 2019, which is unchanged from last month’s forecast, before decelerating to 6.0% in 2020.

The economy looks set to gain traction in Q2 FY 2019, which runs from July to September. Rainfall in August and September, the final two months of the four-month monsoon season, is expected to be normal, which, coupled with above-average rainfall in July, should alleviate concerns in the agriculture sector following the dearth of rain in June. In addition, the private sector PMI rose to an eight-month high in July, mainly on the back of a rebound in the services sector. Looking back at Q1, the economy likely strengthened slightly thanks to faster annual industrial production growth, although the private sector PMI averaged notably lower than in Q4 FY 2018. Meanwhile, in politics, the government contentiously scrapped Jammu and Kashmir’s special status on 5 August, triggering civil unrest despite the government’s preemptive clampdown. In retaliation, Pakistan has suspended bilateral trade with India. • In FY 2019, the economy should maintain steady momentum, particularly if monsoon rains turn out to be normal. Fixed investment should benefit from greater policy certainty following the elections, in addition to lower interest rates. However, weak public finances, struggling non-bank financial lenders and a shaky global economy pose downside risks. Our panelists expect GDP growth of 6.8% in FY 2019, which is down 0.1 percentage points from last month’s estimate, and 7.1% in FY 2020.

FocusEconomics Consensus Forecast - East & South Asia

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