China’s Softer Slowdown Is No Respite for Global Growth Worries

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China isn’t set to come to the rescue of a weakening world economy even amid signs policy makers are successfully cushioning some of its slowdown.

A wave of data released on Monday showed December gauges of consumption and factory output in the world’s second-largest economy accelerated and investment held up even as expansion in the fourth quarter dipped to 6.4 percent, the softest since 2009.

The upshot of all the numbers is that while a slump may for now be avoided, the government’s preference for drip-feed stimulus means a rebound in growth is also unlikely too. That risks disappointing the investors and business leaders descending on Davos for the World Economic Forum’s annual meeting and who are already concerned by trade wars, the U.S. government shutdown and Brexit.

“If China continues with its measured and piecemeal approach to stimulus, global growth will continue to lose momentum,” said Katrina Ell, an economist with Moody’s Analytics in Sydney. “The big unknown is how far China will go. Beijing’s preference has been to avoid repeating previous massive stimulus support, but they may be forced into more aggressive action if momentum continues to wane.”

China’s economy, which contributes about a third of global growth, is on a long-term slowing trajectory as it shifts from the investment-led model of the past while carrying a heavy debt load. The government’s response with targeted stimulus measures is also being tested by the standoff with U.S. President Donald Trump over trade at a time when the global expansion is already looking shakier.

Capital Economics estimates slower China expansion will shave about 0.2 percentage point off global growth this year, compared to 2018, while Citigroup Inc. warned in a Jan. 14 note that the China slowdown may “blow the global economy off course.”

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The data contributed to a continued rally in Asian stocks, with shares in Tokyo, Hong Kong and Sydney climbing.

For the full year, the economy expanded 6.6 percent, the slowest pace since 1990 and in line with estimates. Although it has moderated significantly from the years of double-digit growth, China is still one of the fastest growing large economies and its larger size now means it remains the world’s growth engine.

A breakdown of the latest data indicate modest signs that government stimulus may be working, albeit slowly. Investment in infrastructure continued its pickup from a nadir reached in September. Industrial output data signal stronger activity in construction, with glass and cement output both accelerating.

The retail sales breakdown also went some way to counter fears of a slump in consumer confidence, showing that the decline in auto sales far outpaces any weakening in other items. Sales of household electronics, furniture, clothing and food all accelerated.

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