In the first quarter of 2016, China’s economy expanded 6.7% on an annual basis, on par with consensus expectations. The Q1 2016 GDP growth decelerated moderately from Q4 2015’s growth of 6.8%. Meanwhile, the country’s industrial production growth rebounded at a solid pace of 6.8% y/y, while fixed assets investment grew 10.7% y/y. But, the latest positive reports do not alter the projections of a continued deceleration in 2016, according to Nordea Bank. The economic growth is still forecast to decelerate to 6.5% in 2016 and to 6% in 2017, noted Nordea Bank.
The aggressive monetary stimulus is mainly supporting stabilization in China’s economy. The Chinese economy received total credit of CNY 2.34 trillion in March, much more than consensus expectations of CNY 1.4 trillion, and fourth highest lending on monthly basis on record. A sharp economic deceleration in 2016 can be avoided with a use of credit growth; however, it increases the medium-term risk that the huge debt bubble might burst. The current total debt is near 240% of GDP, one of the highest globally.
Expectations for the real GDP growth rate of China have continuously been tapered. China’s construction and manufacturing sectors are likely to keep struggling as firms in the country undergo restructuring. Meanwhile, private consumption and the service sector continue to grow and becoming quite vital for the Chinese economy. According to the Bureau of National Statistics, consumption growth contributed 66.4% to the economic growth in 2015, up from 50.2% in 2014.
