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23 Nov 2015
Chinese economy to witness consistent slowdown in medium-term – Danske Bank
FXStreet (Delhi) – Thomas Harr, Global Head of FICC Research, suggests that in the midst of a global cyclical recovery and a stabilisation in China, challenges for global growth over the medium term remain, with the industrial/investment cycle in China in a structural decline.
Key Quotes
“China has experienced more than 30 years of investment boom with investment to GDP reaching close to 50% at its peak. Meanwhile, total leverage (government, household and corporate) rose to around 225% in 2013 from around 165% in 2008 and there are no signs that the tide has turned yet.”
“The build-up in leverage since 2008 came in the aftermath of the significant fiscal and credit stimulus in late 2008 and early 2009. In coming years, China will have to deleverage exactly as the west has been forced to do since the global financial crisis. This, combined with the much overdue rebalancing of its economy from investment- to consumption-driven growth, will drive a consistent slowdown in the Chinese economy over the medium term. This will be a major drag on the global economy in coming years and will have important implications for investment returns over the medium term.”
Key Quotes
“China has experienced more than 30 years of investment boom with investment to GDP reaching close to 50% at its peak. Meanwhile, total leverage (government, household and corporate) rose to around 225% in 2013 from around 165% in 2008 and there are no signs that the tide has turned yet.”
“The build-up in leverage since 2008 came in the aftermath of the significant fiscal and credit stimulus in late 2008 and early 2009. In coming years, China will have to deleverage exactly as the west has been forced to do since the global financial crisis. This, combined with the much overdue rebalancing of its economy from investment- to consumption-driven growth, will drive a consistent slowdown in the Chinese economy over the medium term. This will be a major drag on the global economy in coming years and will have important implications for investment returns over the medium term.”