Chinese growth likely to edge downwards toward 6.0-6.5 pct by end-2017 on prevailing headwinds, says BBVA Research

Economic growth in China is expected to edge downwards by end of this year, despite having a strong start as headwinds still remain. Last year’s recovery continued into 2017. The latest data releases point towards another month of strong growth.

In particular, fixed asset investments (FAI) and industrial production (IP) strengthened in February, while trade figures improved in line with a pickup in global activity. Growth is expected to edge down towards 6.0-6.5 percent by year-end, as headwinds remain.

The country’s IP increased by 6.3 percent y/y, up from 5.8 percent in the previous month, while FAI surged to 8.9 percent y/y, up from 8.3 percent. Trade figures also remained supportive. Combining data for January and February to account for disruptions around Chinese New Year, exports improved by 3.3 percent y/y while import growth accelerated to 30 percent y/y.

The former is in line with a significant pickup in global trade while the latter can be traced back to higher commodity prices and infrastructure spending at a local level. On the other hand, consumption has shown some signs of weakness, as reflected by retail and auto sales which could weigh on the economy in the months to come.

"On this note, headwinds have not vanished yet, so we expect growth to edge downwards towards 6.0-6.5 percent by year-end. The main risks include expectations of steeper RMB depreciation in case the Fed hikes rates more aggressively than expected, mounting levels of corporate debt and a potential correction in housing prices," the report commented.