On June 26, 2019, the BOC Institute of International Finance released the Report on Economic and Financial Outlook for 2019Q3 (hereinafter the “Report”) in Beijing, which reviewed the economic and financial situation of China and the world at large and the operation of global banking industry in the first half of 2019, and gave an outlook for the economic and financial situation as well as the trend of the global banking industry in the next half of 2019.
Looking at the global economic and financial situation, the Report concludes that 2019Q2 saw a further weakening in the investment in international trade, a shrinkage in manufacturing growth, another round of volatility in the financial markets and weakened momentum behind the recovery of global economy. Looking into the future, the global economy is exposed to risks caused by the prolonged frictions in international trade and the narrowed space of fiscal and monetary policies around the world. The slowdown of global economic growth will decelerate the growth of demand for crude oil, while the US and other non-OPEC countries will continue to increase their oil production.The crude oil Brent price will possibly meet with ups and downs at the current level, but we cannot rule out the possibility that the geopolitical conflicts will lead to the surge of oil price. The circumstances of global economy and trade are uncertain, chronic and complicated in nature. The gaming among big powers is remaking the global supply chain, as well as economic and trade rules. The US economy is about to see the end of the ongoing recovery. Risks such as structural imbalance, debt pileup and trade frictions will press the economy to decline. Consequently, the Fed’s monetary policy is expected to turn loose.
With respect to China’s economic and financial situation, according to the Report, China’s economy faced more and greater uncertainties externally in H1. Backed by the “six-pronged policy to boost stability” and other policies, the economic performance was stable overall and showed four characteristics: slowing growth, rising inflation, stable employment and improved equilibrium in the balance of payments. China’s GDP is expected to grow at about 6.2% in Q2, a slight drop from Q1. Looking into H2, the Sino-US trade frictions will be highly uncertain, the tit-for-tat tariffs between the two countries will continue to unleash a material impact, global economy is very likely to slow down and major economies will start to reverse the stance of monetary policy. Domestically, local governments’ debt risks will emerge. Recently, the credit and liquidity risks of some small and medium-sized banks have aroused intense market concerns. Defaults on debts still emerge among small and medium-sized private enterprises. Given the expectedly faster implementation of the “six-pronged policy to boost stability” and the low base of the previous quarter, China’s economy is expected to stabilize in Q3 and the annual GDP growth rate will be about 6.4%. The current round of economic downturn is the combined result of the internal factors (replacing old growth drivers with new ones) and external factors (global economic slowdown and Sino-US trade frictions). As for policy orientations, first, the intensity and efficiency of the fiscal policies should be enhanced while properly addressing the fiscal sustainability. Second, the monetary policy will continue to provide counter-cyclical adjustments, and interest rate cuts should become an important option. Third, the supply-side structural reform will be furthered to boost market vitality and confidence. Fourth, a city-specific approach to real estate regulation should be maintained to prevent high volatility in the property market. Fifth, the impact of non-economic factors on economy and finance should be eliminated by every feasible means.
