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China: Worse before it gets better – Danske Bank

Analysts at Danske Bank suggest that after the Chinese economy slowed in 2018, they expect it to slow further in the short term but to recover from Q2 19.

Key Quotes

“We look for a trade deal between the US to be reached at some point in Q2 after a 90-day ceasefire was agreed upon on 1 December between the US and China. We see clear signs that Trump wants to make a deal with China soon after his hand has been weakened by US stock market declines. He also wants to secure gains for voters in US swing states as part of the deal as he eyes the 2020 Presidential election campaign, which starts in 2019. China is also interested in a deal, as the trade war weighs on the economy. If we get a trade deal in Q2, it should remove a sharp headwind for the Chinese economy.”

“We expect fiscal and monetary stimulus to kick in more forcefully in 2019 and we might even see further policy easing. A decent household tax cut and lower tax burden for businesses may be in the pipeline. The sharp decline in bond yields witnessed in 2018 normally feeds through to the construction sector with a six-nine month lag. We thus look for a pick-up in construction activity as 2019 progresses.”

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