Chinese economy grows slightly above expectations in Q4; rebound unlikely to last long, says Nordea Bank

At present, the momentum of China’s economic growth is robust. The fourth quarter GDP growth data surpassed consensus expectations slightly. The Chinese economy grew 6.8 percent year-on-year in the December quarter, as compared with consensus expectations of 6.7 percent. Thus, the Chinese economy expanded 6.7 percent in 2016 as a whole. This is within the government’s targeted range of 6.5 percent to 7 percent.

However, the rebound in economic growth is unlikely to last long and is expected to decline further this year, noted Nordea Bank in a research report. Supportive fiscal and monetary policies would avert the economic growth from freefalling in the near-term future. However, the cost of this strategy is becoming heavy. It brings up questions about how long China could continue to depend on the credit-driven investment growth, stated Nordea Bank. The positive economic sentiment is in line with other indicators.

The economic rebound was mainly attributable to the recovery in the construction activity and the housing market in 2016. The national housing sales grew 22 percent, while house prices growth in mega cities came in at 32 percent. But the boom in the house market is expected to have come to an end.

Given the increasing concern regarding the housing bubble, the authorities have tightened mortgage policies since September 2016 and house purchase bans were introduced again in most huge cities. Housing prices and sales are already slowing down. The easing in the housing market is likely to weigh in on construction activity and industrial demand around the summer in 2017, said Nordea Bank.

Moreover, apart from an easing housing market, the Chinese economy faces risk on the downside from the possible trade tensions to the U.S. under the administration of Donald Trump. Exports of China have been facing downward pressure for most of 2016 because of sluggish external demand and tougher competition from the lower-cost producers. Even if exports in USD values have rebounded slightly, volumes of exports continue to be in contraction, which is in line with the PMI export orders remaining below 50.

Even if the Chinese economic growth is expected to trend down in 2017, there is no large risk for a sharp deceleration. Accommodative fiscal policy would keep a floor for growth, added Nordea Bank.