On June 28, 2018, the BOC Institute of International Finance released the Report on Economic and Financial Outlook for 2018 Q3 (hereinafter the “Report”) in Beijing, which reviewed the economic and financial situation of China and across the globe and the operation of the global banking industry in the first half of 2018, and gave an outlook of the economic and financial situation as well as the trend of the global banking industry in the second half of the year.
In terms of the global economic and financial situation, according to the Report, the global economy continued to grow in the first half of 2018. The trend of recovery stayed unchanged, but the marginal growth momentum weakened. Looking ahead, the two biggest risks facing the global economy are the trade protectionism started by the US and the shift in the global loose monetary policy. In 2018, the global inflation will rise significantly compared with 2017, and the monetary policies of major central banks will probably diverge further, triggering rebalancing of financial markets. The risk of recession reflected by a flat or even inverted US Treasury yield curve calls for attention. The political crisis in Italy has temporarily come to an end, but whether the political risks in Europe can be eliminated depends on the determination and pace of EU reform, and it is imperative to adjust fiscal and monetary mechanisms. In the context of the Fed’s interest rate hike, financial stability in emerging markets will continue to be put to the text.
Regarding China’s economic and financial situation, the Report holds that supported by the sustained recovery of the world economy, the strengthening of new domestic growth drivers, and the warming of the real estate market, the Chinese economy continued to be stabilized and improved overall in the first half of 2018. The GDP is estimated to grow at around 6.7%. The Chinese economy is still in a critical period of shifting from old growth drivers to the new ones, and has not entered the so-called “new cycle”. As the tightened financial policies have led to relatively severe economic contraction, the economic development showed signs of returning to the old path or development mode. Overall, the downward pressure on China’s economy will increase in the second half of 2018. It is expected that GDP growth will be around 6.7% for both the second half and the entire year, with the annual growth rate 0.2-percentage-point lower than the previous year. Macroeconomic policies will continue to seek improvement in stability and the risk of economic downturn and market fluctuations caused by “over-adjustment” should be guarded against. Proactive fiscal policies will play an important role in stabilizing economic growth and promoting high-quality development. Monetary policymakers will focus on addressing difficulties and high cost in corporate financing, set appropriate pace and intensity for deleveraging, and hold the bottom line that no systemic financial risks should occur.
As to the development of the global banking industry, according to the Report, the external environment of the global banking industry remained stable as a whole though the local risks rose somewhat in the first half of 2018, and the development of banking industry in different countries diverged. The performance of the US banking industry improved significantly; the China’s banking industry maintained safe and stable operation, and the performance of banking industry in other countries and regions showed great differences. Looking into the second half of 2018, the development of global banking industry may slow down and the risks will rise. It is expected that the environment for US banking industry will still be favorable; the business expansion of banks in the Europe and emerging markets will suffer some adverse impacts, weak growth and probably deteriorated risk situation; the business growth rate of China’s banking industry will stay at a low level, but the profit efficiency will continue to be improved, meanwhile the pressure on credit risk will increase, and the risk resilience is expected to be strengthened.
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