Oxford Economics Sees China GDP Expanding 6.7% in 2016; Growth Stable in November

Amid substantial uncertainty, China could hit 6.7% or at least 6.5% GDP growth this year, predicts Oxford Economics. China’s economic growth held steady in November as investment slowed but exports and consumption picked up pace, according to Oxford Economics.

“In 2017, China should benefit from any pick-up in growth in the US from more expansionary fiscal policy under President Trump,” writes Louis Kuijs, Head of Asia Economics at Oxford Economics. “But the increase in uncertainty and risk of China-specific trade restrictions will weigh on exports.”

Overall, Oxford Economics expects the export outlook to improve somewhat next year, helped by some strengthening of global demand and the 8% trade-weighted depreciation in the year to November.

Kujis also noted that the brisk rise in the China Producer Price Index (PPI) recently has led to questions about the risk of significant inflation and implications for the policy stance.

The PPI was up 3.3% on the year in November, compared to CPI inflation of 2.3% . “However, we do not think PPI inflation will be high for long.”

Nominal fixed asset investment (FAI) growth slowed from 9% in October to 8.3% y/y in November, in part reflecting weaker real estate activity. As expected, housing sales growth slowed strongly last month to 7.7% y/y, following housing purchase restrictions introduced by local governments in more than 20 cities in early October. Manufacturing FAI, on the other hand, picked up pace, growing 8.3% last month.

In all, overall growth of industrial value added (VA) nudged up to 6.2% y/y in November, with mining output continuing to fall and manufacturing VA growth steady at 6.7%, according to Kujis.

“Domestically, infrastructure investment should remain solid, in the year of a major leadership reshuffle. And corporate investment should benefit somewhat from renewed profit growth. But the recent tightening of housing purchasing restrictions in many large cities will weigh on real estate investment and consumption will likely slow further on moderating wage growth,” says Kujis.

Next year, growth will continue to rely on policy support in the form of fiscal expansion and, especially, generous credit growth, according to Kujis.

“We do not expect policymakers to significantly slow the pace of credit expansion before the 19th Party Congress of H2 2017. But the decent overall economic growth achieved recently makes it a bit easier to consider some adjustment of the stance. Indeed, the PBoC has started to signal a mild shift of its stance, allowing 3-month interbank interest rates to rise.”

 

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