Trade row's impact on growth declines

In light of the (temporary) ceasefire of the US-China trade conflict following the meeting between President Xi Jinping and his US counterpart Donald Trump on Dec 1, we at UBS now expect a less sharp slowdown in China's export and GDP growth in the first quarter of 2019. A mutual understanding of a stable RMB exchange rate is likely an important part of any trade deal, and as such, we expect to see the RMB to US dollar exchange rate hovering around 7 for longer. China's domestic policy mix may pivot somewhat as well.

We revise China's 2019 GDP growth forecast from 6.0 percent to 6.1 percent.

While we do not expect the two sides to reach a grand deal before March 2019, we think the probability of further delays in additional tariffs as the two sides negotiate beyond March 1 has significantly increased. As a result, the full year export growth will likely be slightly stronger than forecast earlier. Imports will also be slightly stronger than expected earlier, helped in part by expected additional tariff cuts.