The outlook for China against US or European recession
- 07 September 2022 (5 min read)
Key Points:
- Growing stress in the global economy is stoking fears that a sharp slowdown in external demand could be the last straw for the Chinese economy
- Using OECD ’s data, we estimate the potential shock to China in various slowdown scenarios. In the case of a soft landing – whereby developed economies slow but avoid a recession – China’s export growth would fall to single-digits, reducing its GDP contribution by half compared to 2021. But in two adverse scenarios – varied by the severity of recession – falling export growth could subtract up to 0.7% from China’s GDP
- We also consider the possible impact of a broader economic slowdown spreading to the rest of the world. Against which, we think, Beijing would likely take aggressive action to cushion the growth shock. However, the policy offsets are unlikely to be complete. Hence, some revision to our growth forecast would be warranted depending on the timing and severity of the shock
- Finally, we examine how financial markets in China may react to a slowing US economy. The recent dollar strength may continue on safe-haven flows. Chinese equities will unlikely be immune from further US market weakness but the downside could be limited by relative valuations. In the bond market, the current level of US interest rates points to upside risks to Chinese bond yields
Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document.
Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ
In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.