Ongoing U.S.-China trade tensions continue to chip away at Chinese economic growth. China’s National Bureau of Statistics (NBS) said on Thursday that the country’s economy slowed in the first two months of the year as the rate of industrial production fell to its lowest in a decade. Industrial production growth slowed to 5.3 percent in January and February compared to the same period a year earlier, down from 5.7 percent growth in December. The January and February output growth rate was the lowest since March 2009, at 5.1 percent.
Unemployment in China also increased during the first two months of the year, rising to 5.3 percent in January and February, compared with 4.9 percent in December. It’s the highest unemployment mark for the January to February period since 2017. Julian Evans-Pritchard, the senior China economist at Capital Economics, said “the latest activity and spending data suggest that economic conditions remained weak at the start of 2019. The statistics bureau publishes combined data for the first two months of the year in order to iron out seasonal volatility caused by annual shifts in the timing of Chinese New Year.”
Moreover, China’s overall growth rate dropped to 6.6 percent last year, the slowest growth rate in 28 years, mostly attributed to trade tensions between Washington and China. To help prop up the economy, Beijing is trying a number of measures, including putting in place a series of fiscal stimulus measures, including tax cuts and additional funds for local government infrastructure spending. On Friday, Chinese Premier Li Keqiang said China could use reserve requirements and interest rates to support economic growth, as he pledged broad policy steps to prevent a sharper deceleration as the country’s economic expansion slows.
Trade tensions linger
On Thursday, U.S. Treasury Secretary Steven Mnuchin said a summit to seal a trade deal between President Trump and Chinese President Xi Jinping would not happen at the end of March as previously discussed because more work is needed in U.S.-China negotiations. Mnuchin, speaking to reporters following a U.S. Senate Finance Committee hearing, said both sides were “working in good faith” to try to reach a deal “as quickly as possible.” He added that “there’s still a lot of work to do, but we’re very comfortable with where we are. I don’t think there’s anything significantly different on the currency issue from where we were last time.”
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It’s also ongoing trade tensions and worries over economic growth, which has already hit Asia and much of Europe, with North America likely to follow, that keeps global oil prices from breaking new ground and trending upward more than they already have.
Recently, global oil prices seem to be caught in a tug of war between supply-side factors, including successful OPEC+ efforts to reign in oil production per their agreement reached last year for a 1.2 million bpd cut. Production shortages from both Iran and Venezuela as U.S. sanctions eat into both countries’ oil output, and soaring U.S. oil production, recently bypassing 11.2 million bpd are also weighing on prices.
However, slowing economic growth in China has yet to eat into its oil demand growth and oil imports. Crude oil demand in China, the world’s largest crude oil importer, in the first two months of 2019 rose 6.1 percent from a year earlier to a record 12.68 million bpd, official data showed this week. Correspondingly, global oil prices on Friday reached their highest price points so far this year amid OPEC+ cuts, and pullbacks in Iranian and Venezuelan output is creating a slight supply deficit in global oil supplies for the first quarter, Refinitiv data showed.
U.S.-oil benchmark West Texas Intermediate (WTI) crude futures were up 15 cents at $58.76/barrel at 0745 GMT on Friday, their strongest mark so far in 2019. London-traded, global benchmark Brent crude oil futures were at $67.43 per barrel, up 20 cents, or 0.3 percent, from their last settlement - within a dollar of their 2019-high of $68.14 2019 reached the previous day. Oil prices are up about a quarter since the start of the year.
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By Tim Daiss for Oilprice.com
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The proof is that China’s economy is projected to grow this year by 6.6% as it did in 2018 compared with some 2.5%-3.0% for the US and 2.0% for the European Union (EU). Moreover, China’s crude oil imports hit their highest record in January and February reaching 10.4 million barrels a day (mbd) and are projected to reach 11 mbd this year. This is certainly not a sign of a slowing economy.
In the 1990s, China’s economy was growing at rates ranging from 10%-12% per annum. During the first decade of the 21st century, China’s economy became a fully developed and mature economy. If the author understands economics, he would know that a growth of 6.6% per annum is an outstanding achievement for a mature economy.
Still, an early settlement of the US–China trade war will impact positively on the global economy and the global demand for oil. However, President Trump and those who advise him should realize that China will never put its name to any agreement that allows President Trump to claim victory. It will just walk away from the negotiations.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London