Brands expanding their Asian footprints are watching China closely for signs of a slowdown as the trade war rages on.
Following a fact-finding trip to the Asian giant, the Washington-based International Monetary Fund today gave a reading, with the verdict being that there is tentative evidence that the world’s second-largest economy is in fact starting to cool — and it could get worse.
The lender of last resort trimmed its 2019 growth forecast for the Chinese economy slightly to 6.2 percent from 6.3 percent and stressed that risks are “tilted to the downside” amid the uncertainty surrounding trade tensions.
Over the next five years, the economy is expected to weaken further, with the IMF penciling in a 6 percent expansion in 2020 and just 5.5 percent in 2024.
“After the slowdown in 2018, Chinese economic growth stabilized in early 2019 reflecting a wide range of policy support. Renewed trade tensions, however, represent a significant source of uncertainty, which is weighing on sentiment,” David Lipton, the IMF’s first deputy managing director, said after returning from China.
If trade tensions escalate further, putting at risk economic and financial stability, some additional policy easing would be warranted, he added.
A further deterioration in relations may happen sooner rather than later if the Trump administration follows through with its threat to impose tariffs on almost every single Chinese import, including apparel and footwear.
It is currently preparing the necessary paperwork, with some analysts predicting that the new 25 percent tariffs could come into force as early as the end of the summer. But others are hopeful that the two superpowers can come to an agreement before that point.
U.S. Treasury Secretary Steven Mnuchin is set to sit down with People’s Bank of China Governor Yi Gang sometime during the next few days, but there is no date in the calendar for a meeting between President Donald Trump and Chinese President Xi Jinping, although they may meet later this month at the upcoming G20 summit in Japan.
For now, Lipton advises the two sides to “work constructively to address shortcomings in the trading system and enable a system that can more readily adapt to economic changes in the international environment.”
“China can also play an important role and benefit from further opening up and other structural reforms that enhance competition. Trade tensions between the U.S. and China should be quickly resolved through a comprehensive agreement that supports the international system and avoids managed trade,” he said.