SINGAPORE — China’s growth is likely to moderate in the coming months as the country faces risks on two fronts, according to the chief Asia economist of Goldman Sachs.
“The first is simply policymakers are quite comfortable with the recovery so far and are starting to pull back on policy stimulus to some degree,” Andrew Tilton said on “Streets Signs Asia” on Monday.
“If things do continue to go well, then we could have some inflation risks,” he added.
China is expected to show “spectacular” gross domestic product numbers in the first quarter this year.
The world’s second largest economy showed robust GDP growth in the fourth quarter of 2020, expanding at 6.5% compared to a year ago. It beat market expectations, and made China one of the few major economies in the world to record positive growth for a year mired by the coronavirus pandemic.
Explaining Chinese policymakers’ move to pull back on stimulus, Tilton said: “Credit growth has slowed, fiscal deficit has come in and lately, there’s been a tightening of liquidity, to stem what they may view as excessive speculation in the markets.”
Fresh Covid outbreaks in China spark concerns
The second challenge to China’s growth recovery is a resurgence of local outbreaks, said Tilton.
The country is currently battling one of its worst outbreaks since March last year. Chinese authorities have recently imposed new restrictions in an effort to suppress a series of outbreaks in and around Beijing.
“The basic argument is that China’s largely normalized. So there’s more downside if there is a renewed spread of the virus and there’s less upside before you start to reach capacity constraints,” he said.
start to reach capacity constraints,” he said.
What still has to get back to normal is the services sector of the economy, which we all know has remained quite constrained by virus restrictions in many countries.
Andrew Tilton
CHIEF ASIA ECONOMIST OF GOLDMAN SACHS
Ultimately, Tilton expects markets to stay in the relatively “happy middle of these two scenarios” over the next six to nine months. “But I think markets will probably worry at times about one or both of those,” he noted.
As far as regional growth is concerned, Tilton remains confident on the strength of Asia’s trade recovery, which reflects the broader global pickup in industrial activity.
“This year, the traded goods sector of the economy is relatively less vulnerable to virus-related restrictions, so that’s already recovered quite sharply. And we’re seeing that in trade volumes and prices,” he said. “What still has to get back to normal is the services sector of the economy, which we all know has remained quite constrained by virus restrictions in many countries.”
Overall, Tilton is bullish about regional growth in Asia for 2021, but thinks “China is likely to come in at, or maybe a little below, consensus.”
