China: moderate slowdown ahead in growth - Danske Bank

Analysts from Danske Bank, project a moderate slowdown in China. They see USD/CNY lower, at 6.20 in 12 months.  

Key Quotes: 

“The Chinese economy strengthened in 2016-17, pulled by a strong housing market, robust infrastructure spending and higher export growth. Growth in 2017 ended up stronger than expected at 6.9% (previously expected around 6½%). Indicators for Q1 18 have stayed quite solid, although some signs of slowing can be seen in the PMI data and in softer momentum in global metal prices (China consumes 50% of global metals).”

“Looking ahead we continue to project a moderate slowdown. First, China has taken several steps to cool the housing market and home sales have stagnated. Second, we expect a downshift in external demand, pushing export growth a notch lower. We expect GDP to grow 6.5% in 2018 (revised up from 6.3%) and 6.3% in 2019 (revised up from 6.0%).”

“We expect consumption growth to stay robust, though. We continue to see strong long-term potential in Chinese growth increasingly driven by services, consumption and tech investments within manufacturing. We expect the Chinese economy to double in size by 2030 and by then become the biggest economy in the world, surpassing the US economy.”

“We expect monetary policy to be more neutral in 2018 with 1-year money market rates moving within a 4.5-4.7 interval while official benchmark rates are kept unchanged. We look for the credit impulse to recover slightly towards 7.5% by the end of 2018.”

“The USD/CNY has been highly correlated with the overall movement in the trade-weighted USD over the past two years. We expect a further moderate weakening of the USD to drive USD/CNY lower to around 6.20 in 12M.”