China – Growth likely to beat target with fiscal expansion - SCB
|Analysts at Standard Chartered Bank (“SCB”) explained that Growth in China slowed moderately in H1.
Key Quotes:
- Policy priority has shifted to stabilising growth from deleveraging amid escalating tensions with the US.
- The budget leaves ample room for fiscal expansion, which is expected to be used to offset trade risk.
- Credit growth may catch up with nominal GDP as the tightening bias has been removed.
- We raise our 2018 growth forecast to 6.6% from 6.5% on a solid H1 print and demand-supporting policies.
"Growth in China slowed moderately in H1 mainly due to tighter domestic policies. The US-China trade tensions may cause a sharper deceleration in H2. The recent Politburo meeting called for a greater role of fiscal policy in expanding domestic demand, and a measured pace of deleveraging. We see the policy shift as a sign that the government will make every effort to achieve its 6.5% growth target for this year, in order to bolster confidence in a trade showdown with the US.
We think there is substantial room for fiscal policy to be expansionary without a revision of the budget. Budget implementation in H1 points to the risk of deficit undershooting, again. If the budget is fully implemented, fiscal deficit would be 0.9% of GDP (or CNY 1.1tn) higher than last year, according to our calculation (Figure 1). We believe the authorities are under pressure to make good use of this room, through tax cuts and faster infrastructure spending.
We raise our 2018 growth forecast to 6.6% from 6.5% due to better-than-expected H1 performance and demand-supporting policies. The authorities have removed the tightening bias of monetary policy, and we expect money and credit growth to catch up with nominal GDP in H2. Growth will likely slow further in the next few quarters due to weaker exports and the lagged effect of tight credit, but the expected fiscal stimulus can help curb the downside in our view. We now forecast growth of 6.5% y/y and 6.4% y/y in Q3 and Q4, respectively."
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.