China’s ability to deliver solid economic growth in coming months remains a key market assumption to prevent a further global growth slowdown in 2019 and beyond.1 Beijing has been able to confound skeptics by delivering strong and stable growth without interruption for decades, and market consensus expects the Chinese government to once again be able to continue to deliver similar results in the foreseeable future. Economic dynamism, low inflation, and a stable exchange rate are seen as key goals for China’s political leadership in order to maintain stability within the country’s complex social fabric and to be able to exercise full political control. However, years of massive credit and fiscal expansion, combined with a stable yuan policy to ensure strong growth in the face of external and domestic headwinds during the last decade, have undermined the country’s balance of payments position. The erosion of the very large current account surplus that the economy enjoyed in the past is likely to be a constraint on growth, especially because it limits implementation of large fiscal and monetary stimulus without exacerbating external imbalances.
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1China has represented approximately 32% of global growth during the last 10 years. For every 1 percentage point that China’s GDP slows down, global growth slows approximately 0.3 percentage points.
The commentary is the opinion of Seix. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.