China’s policy stimulus supports near-term growth prospects – Fitch

The Chinese government’s determination to defend the country’s growth targets and the impact of stimulus measures already taken will support Chinese economic growth in 2016 and 2017, Fitch Ratings said but forecast growth to drop below 6 percent in 2018, as the short-term boost from measures focused on increasing credit and investment fades.
“We have raised our Chinese real GDP growth forecasts for 2016 and 2017 to 6.3 percent in our May Global Economic Outlook, up by 0.1pp and 0.3pp, respectively, from our previous forecasts. Recent data point to a pick-up in housebuilding and infrastructure investment, which ought to benefit Chinese industry on a broader basis. Higher monetary growth targets at the March National People’s Congress and official pronouncements show a policy focus on stabilising near-term growth at around the 6.5 percent target. We think this focus will remain at least until the 19th Party Congress in November 2017,” Fitch said in a report.

A more sustainable improvement in growth would require better productivity performance, however, and rising debt is likely to weigh on private investment, Fitch said. “We forecast growth to slow to 5.8% in 2018, and it is difficult to reconcile official growth targets with significant economic rebalancing and an easing of systemic risks associated with rising leverage.”

Elsewhere in the Asia-Pacific region, the mix of stimulus and structural reform in macroeconomic policy is also evident. Policy-rate cuts in India and Indonesia, for example, are likely to feed through to higher GDP growth. Monetary easing has been facilitated by external factors, as low oil prices have contained inflation and narrowed current account deficits, and the Fed has kept US rates on hold since December, the report said.

“But broadening reform agendas and government resolve to implement them in both countries also support our predictions of steadily rising GDP growth, which we forecast to reach 8.0 percent in FY18-HY19 in India, and 5.7 percent in 2018 in Indonesia. Reforms, such as Indonesia’s effort to improve purchasing power and the business environment, could play an important role in maintaining growth momentum should the external environment deteriorate.”

Fitch said its 2016 and 2017 growth forecasts for Australia and South Korea are unchanged. Both countries are relatively dependent on global developments that can offset the benefits of historically low policy rates, and we see them posting GDP growth of between 2.6 percent-3.0 prcent in 2016-2018.

Japanese growth was better than most forecasters had expected in 1Q16, but that was partly due to a downward revision of 4Q15 reading, Fitch said, adding that its 2016 growth forecast for Japan in the May Global Economic Outlook is unchanged at 0.7 percent. “Wage growth is subdued and the stronger yen could drag on net exports and corporate profits; and we see growth rates largely flat, at 0.6 percent in 2017 and 0.7 percent in 2018. The Bank of Japan has emphasised that it can engage in further easing, but it is not clear that its introduction of a negative-interest-rate policy is combating deflationary risks.


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