16 Feb 2016
China's economic outlook: brace yourself - BBH
Analysts at Brown Brothers Harriman explained that the Chinese economy remains sluggish.
Key Quotes:
"GDP growth is forecast to slow to around 6.3% in 2016 and 2016 and 6.0% in 2017 vs. 6.9% in 2015. GDP rose 6.8% y/y in Q4, the slowest rate since Q1 2009. While policymakers are doing what they can to support growth, investors should be braced for further slowing ahead.
Price pressures are not an issue, with CPI rising 1.6% y/y in December. January data out later this week is expected to show some acceleration to 1.9%. However, PPI fell -5.9% y/y in December, and has remained in deflationary territory since March 2012. The central bank has been on hold since October, when it cut policy rates by 25 bp and reserve requirement by 50 bp. We do not rule out further rate cuts in 2016.
Fiscal policy is not really a concern. The budget deficit is likely to remain around -3% of GDP in both 2016 and 2017, with perhaps some upside risks due to the need for fiscal stimulus. The federal government has very little external debt to speak of, doing most of its financing in local markets. Recent data suggest firms have shifted more towards local currency borrowing, which would lower their vulnerability to adverse exchange rate movements.
The external accounts are in good shape. The current account surplus is seen remaining around 3% of GDP in both 2016 and 2017. Here, lower oil prices have helped reduce imports and offset the downward pressure on exports. Foreign reserves fell $99.5 bln to $3.23 trln in January, but the pace slowed from December. By almost every metric (17 months of imports, short-term external debt/reserves ratio near 25%, etc.), foreign reserves remain high. "
Key Quotes:
"GDP growth is forecast to slow to around 6.3% in 2016 and 2016 and 6.0% in 2017 vs. 6.9% in 2015. GDP rose 6.8% y/y in Q4, the slowest rate since Q1 2009. While policymakers are doing what they can to support growth, investors should be braced for further slowing ahead.
Price pressures are not an issue, with CPI rising 1.6% y/y in December. January data out later this week is expected to show some acceleration to 1.9%. However, PPI fell -5.9% y/y in December, and has remained in deflationary territory since March 2012. The central bank has been on hold since October, when it cut policy rates by 25 bp and reserve requirement by 50 bp. We do not rule out further rate cuts in 2016.
Fiscal policy is not really a concern. The budget deficit is likely to remain around -3% of GDP in both 2016 and 2017, with perhaps some upside risks due to the need for fiscal stimulus. The federal government has very little external debt to speak of, doing most of its financing in local markets. Recent data suggest firms have shifted more towards local currency borrowing, which would lower their vulnerability to adverse exchange rate movements.
The external accounts are in good shape. The current account surplus is seen remaining around 3% of GDP in both 2016 and 2017. Here, lower oil prices have helped reduce imports and offset the downward pressure on exports. Foreign reserves fell $99.5 bln to $3.23 trln in January, but the pace slowed from December. By almost every metric (17 months of imports, short-term external debt/reserves ratio near 25%, etc.), foreign reserves remain high. "