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img_publication Outlook

China Economic Outlook. Third quarter 2017

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Notwithstanding the authorities’ stepped-up efforts to cool down the property market and curb shadow banking, Chinese economy continued its good performance in Q2 with GDP outturn at 6.9% YoY, flat with the Q1 reading and higher than the market consensus. We raise our 2017 growth forecast to tally with the official target of 6.5% from 6.3%.

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1.Global outlook: The positive global environment tends to stabilize

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The world economy accelerated in recent quarters and has approached growth rates of 1% QoQ, although it tends to stabilize. Confidence levels, especially in the advanced economies, remain high, while the recovery in world trade seems to have slowed down somewhat in April and May. In line with this, there has also been an uptick in industrial activity and global investment.



2.Music still goes on

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The upbeat growth momentum could derive from several factors: First, it is occurring in the context of a global trade recovery. Second, the PBoC fine-tuned the pace of financial deleveraging, maintaining comparatively easing credit conditions. Third, the rebalancing of the economy, i.e thriving service industry and high-tech-oriented sectors provided a new growth engine.



3.Growth slowdown amid financial deleveraging in the long run

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In the medium to long run, we believe the growth slowdown is unavoidable. The economy is still subject to a number of uncertainties externally and domestically. The stronger-than-expected growth momentum could reinforce the government’s confidence in pursuing stricter regulations to correct the existing financial vulnerabilities which will consequentially drag on growth.



4.Financial vulnerabilities persist

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Risks from financial vulnerability persist, including debt overhang in the corporate sector and rampant shadow banking activities. Although the shift of the monetary stance and tightening regulatory efforts slowed their momentum, the gigantic “stock” of these frailties still poses a material threat. On the other hand, the ongoing deleveraging might drag on growth as well.


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