A Weak Start to 2019 May Lead to Greater Stimulus This Year

The Conference Board Leading Economic Index^®(LEI) for China suggests that the growth momentum deceleration of recent months paused in December. LEI readings in the next several months will tell if downward pressure is abating. It’s not likely this will be the case.

Late 2018 witnessed a sharp deterioration in China’s macroeconomic data despite the introduction of various pro-growth measures by the government. December data shows no sign of improvement, and we believe the risk of “over-slowing” is rising. Given the poor performance of retail sales and exports, chances are increasing that the government will ratchet up investment activity. Targeted credit allocations and fiscal spending are likely to be deployed more intensively in the coming months, despite the government’s sworn commitment to hard-nosed deleveraging. Such government support will likely lead to a rebound in investment growth in 2019. But policy measures to boost consumption and exports are less certain to work and would necessarily be slower to manifest even if they did.