China GDP growth tipped at 6.9% for Q4 as Government investment is stepped up

HONG KONG – Natixis is keeping its GDP growth forecast for China for Q3 at 6.9% YoY, and at 6.8% YoY for the whole of 2016 on the basis that the Government’s hand is “very visible” on the investment side.

“Fixed asset investment by SOEs jumped from 10% YoY at the end of 2015 to 20% YoY latest in August,”the global asset manager says. “Also, the central Government, through the National Fund, is clearly stepping up investment in infrastructure and social developments.

“At the same time though, capital outflows have only accelerated in the third quarter, which is surprising for a recovering economy, at least based on GDP figures.

“Will the government continue to be as present in Q4? Our take is that probably even more. We do not expect any change in the lax monetary policy stance as credit risk could increase and, thereby, difficulties for corporates to refinance their growing debt, pushing up banks’ NPL.

“As of now, such lax monetary policy will rely on open market operations more than rate or RRR cuts.

“The new economy (consumption and services) should still do better than the rest. Retail sales are expected to stay above 10% YoY in Q4, which means the service and consumption sectors would grow faster than GDP. Trade, although still contributing 4% to 5% of growth, is at a speed lower than the overall increase in GDP.

“Tightening measures to stop the housing bubble may drag down private investment which means that Government expenditure (either consumption, investment or both) will need to continue to be strong, if not stronger.

“All in all, we expect China to end up the year with a fiscal deficit closer to 5% than to the pre-announced 3%. Government leverage is clearly on the rise too.” www.natixis.com (ATI).