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Ho Woei Chen, Economist at UOB Group, assessed the recent trade data from the Chinese economy and prospects for economic growth.

Key Quotes

“China’s exports (in USD terms) remained in contraction at -3.2% y/y in Sep (exp: -2.8%, Aug: – 1.0%) and imports at -8.5% in Sep (exp: -6.0%, Aug: -5.6%), coming in below consensus expectation. Trade surplus widened to US$39.65 bn in Sep from US$34.83 bn in Aug. In CNY terms, exports and imports contracted 0.7% y/y and 6.2% y/y respectively in Sep. YTD, China’s exports and imports (USD terms) registered contractions of 0.1% y/y and 5.0% y/y respectively”.

“Although US and China reached a Phase 1 trade deal, there was no major breakthroughs and the bulk of the focus was on the US$40-50 bn in annual agricultural goods purchases by China while the the 15 Oct tariff was delayed not cancelled and 15 Dec US additional tariffs of 15% on approximately US$160 of Chinese goods remains in place. Between now and APEC summit on 16-17 Nov where US and China leaders will sign the Phase 1 agreement, there remains significant risk of breakdown in talks. We assessed the probability to be around 35%”.

With existing tariffs remaining in place, we keep our full-year growth forecast for China at 6.1% in 2019 and 5.9% in 2020. We expect to see continued weakness in China’s economic data in the near-term. This includes the upcoming release of the 3Q19 GDP (18 Oct), which we forecast at 6.0% y/y vs. 6.2% in 2Q19. This should see Chinese policymakers maintaining a measured pace of proactive fiscal and monetary easing”.