Investor optimism over China continued to decline in January amid concern over the growing load of consumer debt, the heated real estate market and a slowdown in other parts of the world that could lower demand for Chinese exports.
The ZEW indicator for China’s economic outlook declined 14.2 points in January to minus 7.6, ZEW says in a press release. That marks the first time China’s outlook has entered negative territory since ZEW started compiling the index in 2013 and is well below the long-term average of 11.9 points. The assessment of the current state of China’s economy dropped 6 points, also entering negative territory at minus 3.8.
Slowing growth and threats of deflation in Europe as well as deteriorating conditions in many emerging markets threaten to lower demand for Chinese exports and decrease foreign investment in China this year. At the same time, analysts predict declines in real estate prices and a slowdown in Chinese domestic lending will further drag on the economy.
Last week, HSBC said its Purchasing Managers’ Index for China had deteriorated further in January, with staffing levels dropping for a 15th straight month. ‘More aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth,’ said Hongbin Qu, HSBC’s chief economist for China, in a press release.
The outlook for most sectors of the economy worsened in January, with expectations for the retail and commerce sector leading the decline, falling 16.5 points to 35, ZEW says. The next-biggest drop came in construction, which fell 13.2 points to 3.9. The outlook for all sectors, however, remains at least minimally positive.
Expectations for stocks in China improved slightly, with the outlook for the SSE Composite Index over the next three months climbing 7.1 points to 43.2. The outlook for foreign direct investment into China, however, plunged 25.5 points to minus 1.1 while expectations for exports dropped 28.6 points to 19.
