China's fiscal deficit likely to rise 2.7 pct of 2016 GDP, more fiscal easing to help

China saw a better than expected industrial production in November, however, weak trade activity, new loans and slow real estate investment are leading to more easing measures from PBoC.

It is widely expected that PBoC is going to deliver two benchmark rate cuts of 25bp next year in the first half, with continued obstacles to the slow growth at 6% rate.

Also, these rate cuts are expected to support liquidity and lending. Following a tax cut on auto purchases and reduction in down payment requirements for September home purchases, more targeted fiscal stimulus announcements might support investments in consumption and infrastructure, with more cuts in corporate taxes and fees.

"We look for the headline fiscal deficit to expand to 2.7% of GDP in 2016, from the budgeted 2.4% in 2015 and actual 1.8% in 2014, given weak domestic demand and fiscal efforts to support the economy's structural transition", estimates Barclays.