‘China’s economic slowdown,Fed hike likely to dominate global markets’

KARACHI: China’s economic slowdown and the first Fed hike are likely to continue to dominate the global financial markets in the coming months, a chief economist at Standard Chartered Bank said on Tuesday.
“The Chinese economy has been decelerating since 2012. The reason is that they are trying to rebalance their economy by shifting away from manufacturing,” Marios Maratheftis, chief economist and managing director at Standard Chartered Bank, said in a briefing.
The Chinese economy needs a slowdown, as quality of growth should matter, not the pace of growth, he said.
“Chinese economy is expected to grow at 6.9 percent in 2015, he said.
Amid global uncertainty, the two most important challenges on people’s minds are the slowdown in China and the coming US interest rate hikes.
He said that the US Fed is unlikely to hike rates too aggressively. This is in view of the US economic performance and the absence of inflation.
"We expect the Fed to raise interest rates in December this year and then in March 2016, and stay there for a long period," he said.
"To some extent, the impact of the Fed hike has been priced in. But we still expect a hike to be an event worth noting," he said.
After hiking the rate twice, the Fed can also cut the interest rate by the end of the next year, Maratheftis said.
"In 2016, we believe there will be deceleration of growth in the Middle East, while Saudi Arabia may face liquidity problems, as it is withdrawing money from its reserves in the wake of drop in the global oil prices and fiscal constraint," he said.
"We foresee oil prices to go up next year. By the fourth quarter of the next year, we expect the global oil price to be around $75 per barrel,” he said.
Geo-political situation in the Middle East region is affecting confidence of the global investors, he said.
He also said that in the Middle East, oil producers have been making use of past savings to absorb some of the shocks to their domestic economies. As the authorities use up domestic deposits to fund budgets, liquidity on the ground should begin to tighten up. Pakistan is a fantastic market for the SCB and its banking operations will remain intact here, he added.
Bilal Khan, director, MENAP and senior economist at Standard Chartered Bank, said: "Easing monetary cycle is over and we foresee the State Bank may increase the interest rates by 50 to 100 basis points in the third and fourth quarters of the current fiscal year due to rebound in inflation."