More stimulus but slower growth ahead

China’s official GDP growth slowed to 6.5 percent y-o-y in Q3. Policy easing is expected to intensify to prevent overslowing. Nevertheless, continued slowing is anticipated into 2019. High debt levels leave little room for fiscal easing to stimulate investment growth. Additionally, monetary loosening latitude is constrained by depreciation pressures on the RMB, and its effectiveness in any case should be limited by weak investment sentiment. Tax cuts, both announced and anticipated, are less distortive than fiscal expansion, but they take more time to manifest and are less direct. Said another way, current and forthcoming stimulus should help mitigate the ongoing slowdown somewhat, but it will not reverse it. We continue to forecast moderating growth extending into the medium term.