With the trade war between the US and China intensifying and negotiations on hold, the global market must prepare itself for the implications.
China’s growth rate is set to take a half percentage fall as its manufacturing base takes a hit. Some economists however, are proposing that the direct impact will be insignificant. The real challenge will be the impact on market sentiment and expectations, regardless of expansionary fiscal policy that China is likely to implement to bolster demand.
The banking industry is already feeling the pinch. Globally, lenders have seen declining revenue due to the falling margins of funding of cross-border commerce. As export volumes erode and revenues are further reduced, banks are poised for delayed instalments and the accumulation of debt that will impact credit ratings.
Though theoretically Chinese banks will be those most affected, they are often backed by the State to withstand pressure. Those trying to do business in China will be most affected. Increased difficulty in approving credit will simply make it harder to do business.
Though it is too early to predict the impact on client activity and trade flows; the trade dispute could certainly lead to the redrawing of supply chains and export markets.
Within corporate banking, the pressure will be seen in the short-term through declining bonuses and hiring activity. We forecast a downturn in early 2019 as people move out of the industry and fewer candidates come forward to fill the gap. The next generation of bankers are less inclined the regard corporate banking as a long-term career option and are looking instead at specialist roles in product or structured finance. Long term, we expect corporate banking to weather the storm. The fundamentals of trade remain positive, and economic growth is still forecast for the region.
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