China Economy to Stabilize Without Aggressive Stimulus: Goldman

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China’s more than $13 trillion economy will likely stabilize in the second half of 2019 without the need for aggressive stimulus, according to Goldman Sachs Group Inc. Chief Economist Jan Hatzius.

"We don’t think it’s going to be an aggressive amount of stimulus," Hatzius told Bloomberg Television’s Rishaad Salamat in an interview in Hong Kong. "But we would expect some stabilization as we move through 2019 in the Chinese economy."

The pace of expansion in the world’s second largest economy slowed to 6.4 percent during the fourth quarter, the softest since 2009. For the full year, the economy expanded 6.6 percent, the slowest pace since 1990, stoking expectations for additional stimulus from the government after a series of piecemeal measures ranging from tax cuts to steps to boost lending.

While China is locked in a bruising trade war with the U.S., Hatzius pinned much of the slowdown on the government’s policy push to curb the overall level of debt in the economy.

"The most important driver really has been the credit deceleration and the concerns about financial imbalances on the part of the policy makers that has led them to pursue stricter policies," he said. "To us, that is the main swing factor in a negative direction in 2018, maybe in a slightly more positive direction in 2019."

But he also flagged the risk to sentiment and investment from the trade war and cautioned that negotiations between the U.S. and China could yet fail to resolve their differences.

Global Outlook

For his global outlook, the Goldman economist said he sees little need for major changes to global forecasts even as the International Monetary Fund Monday cut its forecast for the world economy, predicting it will grow at the weakest pace in three years in 2019.

He added that the slowdown in the U.S. is necessary to help steer the economy away from a hard landing. Which means the Federal Reserve is likely on hold, for now.

"They have appropriately moved to a pause," he said, adding that the next few months will feature "a very neutral environment and very neutral language."

On Brexit, Hatzius’s base case remains for the British government and European Union to eventually agree on a withdrawal agreement.

"There is some risk of a hard Brexit, but we would really only put that at 10 percent," he said.

To contact the reporter on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Brett Miller

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