China expected to resume role as driver for global economy, BlackRock says

20-Apr-2019 Intellasia | South China Morning Post | 6:38 AM Print This Post

China’s economy, a drag on global growth last year because of a domestic slowdown, is expected to grow more quickly in the second quarter to become the key economic driver for the world, research by BlackRock shows.

More expansive fiscal and monetary policies by Beijing have started to show results that may help to reverse a slowdown that has hit Europe and emerging markets particularly hard, researchers at BlackRock Investment Institute, the research unit for BlackRock Inc, said in Thursday’s report.

That slowdown, they said, was driven by a tighter economic policy pursued by China and the trade war with the US.

“We are increasingly confident that Chinese growth is likely to re-accelerate from the second quarter onward,” said Richard Turnill, global chief investment strategist that led the research.

“The turnaround is already visible in the services sector,” which resumed growth in late 2018 after contracting earlier in the year, according to BlackRock’s index, which tracks Chinese services, manufacturing and trade. BlackRock is the world’s largest investment firm with $6 trillion in assets.

Manufacturing and trade, the other two categories tracked in the report, had yet to show improvement, the researchers pointed out, adding that they expected these sectors’ overall readings to pick up in coming months.

“This should feed through to global capital expenditure spending and provide a welcome temporary respite from late-cycle worries about slowing global growth,” the report said.

BlackRock’s expectation for stronger Chinese economic growth came shortly after Beijing released its first-quarter GDP numbers on Tuesday. The economy grew at 6.4 per cent in the first 90 days of 2019, beating analysts’ expectations of 6.3 per cent forecast by a Bloomberg survey of economists.

BlackRock’s report echoed comments last week by Christine Lagarde, head of the International Monetary Fund, that welcomed China’s recent stimulus moves while warning against excessive debt-fuelled investments that had lately been driving China’s economy.

Since 2011, China has accounted for about one-third of global growth, according to IMF data. BlackRock’s researchers said China’s impact on the global economy could be larger than suggested because Beijing tended to under-report its consumer services data.

Global markets were lifted in the first quarter because of a more positive outlook on US-China trade tensions. The Dow Jones Industrial Average, for example, rose 16 per cent in the first quarter. The researchers, however, cautioned the markets have largely priced in the good news.

Geopolitical issues, the researcher warned, could still dampen economic growth.

While foreseeing the “potential for a US-China trade deal to address the bilateral trade gap and market access”, BlackRock’s researchers said they saw the race for tech supremacy as an enduring theme.

“We could see an agreement that includes a Chinese commitment to purchase more US goods, improve access to domestic markets and make some progress on structural issues such as intellectual property protection,” the report said, adding that the broader trade conflicts between the two countries merit more attention.


Category: China

Print This Post