Chinese GDP growth to edge down in Q1 2018 – Forex News PreviewPosted on April 16, 2018 at 5:16 pm GMTChristina Parthenidou, XM Investment Research Desk
China, the second largest economy in the world and the third top destination for foreign direct investments after the US and the UK will see the release of GDP growth for the first quarter of 2018 on Tuesday at 0300 GMT along with readings on industrial production and retail sales. The economy, which has transformed from an agricultural country to a manufacturing exporter, is expected to slow down in the first three months of the year as measures to mitigate financial risks and pollution continue to weigh on business sentiment, while trade risks have just come on board, clouding the outlook for China’s economic performance.
Analysts believe that GDP growth has inched down by 0.1 percentage points in Q1 2018, expanding by 6.7% year-on-year and 1.5% quarter-on-quarter. The tech sector has been among the fastest growing export industries the recent years as China engaged in outstanding infrastructure spending to improve the country’s product basket from cheap goods to high-value manufacturing goods. However, the hefty leverage resulted in a debt hangover, with China’s total debt-to-GDP ratio peaking at 257% in 2017 according to the Bank of International Settlements, a fact that pushed authorities to take credit-restrictive measures. Besides financial risks, President Xi Jinping’s moves to clean up the environment added further pressure to business activities which are now obliged to look for alternative more environmentally friendly sources. The surprising spike in trade tensions with the US were not good news to Chinese exporters either especially after Trump threatened to impose tariffs on Chinese technology, medical and transport products early this month, drawing a tit-for-tat response from Beijing a day after.
While trade risks are currently receding with the latest news indicating that the US and China are more inclined to start negotiations rather than continue the tariff game, exporters are already preparing their strategies for the alternative scenario where both sides materialize their warnings. Friday’s data on Chinese exports showed a decline of 2.7% in the month of March for the first time in a year, an outcome probably attributed to seasonal effects around the Lunar new year holiday. Still, this could be also a result arising from exporters front-loading their overseas sales earlier to avoid any disruption from a potential trade war.
In forex markets, an upbeat GDP growth report could provide some support to the yuan. The Australian dollar could also bounce higher, given that China is Australia’s main export partner, probably pushing aussie/dollar up to the 200-day simple moving average which currently stands at 0.7814. Steeper increases might send the pair towards the 0.7900 key level as well. On the other hand, a negative surprise could erase last week’s gains, driving the pair down to the 0.7700 round level before the focus shifts to the March low of 0.7640. This could emerge if GDP growth falls below the PBOC’s 2018 target of 6.5%.
Chinese industrial production and retail sales for the month of March will be in the spotlight tomorrow as well to indicate trends in manufacturing activities and changes in consumer spending. Expectations are for industrial production to fall to 6.2% y/y after jumping to a seven-month high of 7.2% in February, whilst retail sales are expected to edge up from 9.7% y/y to 9.9%.AUDUSD
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