Goldman Sachs: China's reliance on credit growth remains a key risk in 2017

Analysts at Goldman Sachs express their take on the Chinese economic outlook and Yuan price-forecast for 2017, noting that long $/CNY is one of their 2016 Top Trades."

Key Quotes:

On China economic outlook:

“A potential resurgence in Chinese growth fears early next year, but more broadly, a continued bumpy deceleration.”

“We expect sequential GDP growth to decelerate into 1Q17 to around.5.5% annualized on recent tightening measures.”

“But we expect a rapid pivot back to stimulus should the growth target look at risk, especially given next year's leadership transition.”  

“Although policymakers have introduced tightening measures to reduce the risk of asset price bubbles, China's reliance on credit growth, which undermines financial stability, remains a key risk. “

On outlook for Yuan:

“We forecast a $/CNY fix of 7.00, 7.15 and 7.30 in 3, 6 and 12 months, respectively, and long $/CNY is one of our 2016 Top Trades.”

“The pace of capital outflows and the evolution of the fix warrant monitoring; in our view, as long as the fix simply offsets dollar strength and capital outflows are contained, global risk appetite should hold up.”