China: A solid but uneven recovery while big risks remain
Recovery led by industry and exports
- GDP growth surprised on the upside in Q2, supported by net exports and inventories. Exports have been boosted by medical products and electronics, as China produces many of the goods necessary in a pandemic.
- Total investment remained weak in Q2 but infrastructure investment has already picked up. Consumption and services production have remained weaker due to unemployment and virus concerns.
Credit growth has remained moderate
- Credit growth has not surged as monetary stimulus has remained moderate. Policymakers wish to guard against capital outflows and financial risk.
- Monetary policy will remain accommodative and fiscal stimulus will support credit growth over the coming months, but debt will not balloon like after the 2008 crisis.
Continued recovery over the coming months
- Flooding will weigh somewhat on growth in the short term but recovery will continue over the rest of the year and 2021, led by exports and infrastructure investment. Services demand and consumption will gain some strength in the coming months but remain subdued for a while.
- A protracted global crisis is the biggest risk for the outlook right now. Political risk also weighs in the long term.
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