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2019 Global Economic and Market Outlook
Property slowdown to weigh on property-related consumption
Under the property down-cycle, GDP growth could slow to 6.3% yoy in 2019 from 6.6% in 2018.
Consumption growth would slow as well, especially consumption related to the housing market.
That said, lower housing prices and sales could also increase the spending power for mass
consumption.
While the housing market exhibits a strong correlation with consumption, the actual relationship is
more nuanced. At the risk of oversimplification, three relationships are out there.
First, home purchases could create new consumption demand, such as air conditioners, TVs
and furniture. It has also been true for autos in the past, as new housing development tends to be
farther away from the urban centres. Therefore, one might have to buy a car after moving to a new
apartment.
Second, rising housing prices could boost consumption due to the wealth effect. In reality,
such an effect is most evident for conspicuous consumption such as Louis Vuitton or Louis XIII.
Some might view the capital gains from rising home prices as a windfall, so they could be more
likely to spend it in a casino.
Third, high home prices could crowd out mass consumption. Higher home prices force
potential home buyers to save more, so they have to cut their consumption. Meanwhile, household
leverage has gone up meaningfully over the past two years, and this could dampen consumption
as the household sector may want to pay down their debt first.
In sum, consumption would slow in 2019 but hold up better than the rest of the economy. Within
consumption, mass consumption would be much more resilient than property-related consumption
such as autos, Macau gaming and luxury goods (Does the Golden Week still shine? 10 rules of
China's consumption).
No big loosening in property measures by mid-2019
In our view, the property market has passed the tipping point. In coming quarters, we could see the
self-strengthening circle between lower sales and falling prices. That said, we are still 3-4 quarters
away from a big loosening in property measures such as the one in 2Q15. Before that, banks could
lower mortgage rates and increase the availability for mortgage loans, but the government is not
very likely to meaningfully cut down-payment ratios or ease purchase restrictions.
After all, President Xi has tied a considerable amount of his political capital to the success in
achieving “housing is for living, not for speculation.” As home prices are still rising according to the
official data, it’s not very likely for policy to ease so early. Moreover, household debt has increased
steadily over the past few years, rising to 42% of GDP in 2018 from 38% in 2017 and 34% in 2016.
This makes policy makers reluctant to further increase leverage in the household sector.
Fig 32 Auto sales vs. property sales
% 3mma yoy % 3mma yoy
60
Auto sales
Property sales (RHS) 80
Fig 33 Macau gaming revenue vs. housing prices
yoy % yoy %
80 Macau gross gaming revenue Housing prices (RHS) 12
50
60
60
8
40
30
40
40
4
20
10
20
0
20
0
0
0
-20
-20
-4
-10
-40
-40
-8
Source: Wind, Macquarie Macro Strategy
Source: CEIC, Wind, Macquarie Macro Strategy
4 December 2018 22