BBVA says China recovery temporary, tips 5.8% growth in 2017; global growth outlook low, fragile

HONG KONG – In its latest quarterly outlook, BBVA Research is revising its 2016 full-year growth projection for China up slightly from 6.2% to 6.4%, reflecting what it calls “the stronger-than-expected growth momentum of late”. But BBVA expects the ongoing growth recovery to be short-lived, and is keeping its growth projection for 2017 unchanged at 5.8%, “suggesting a protraction of the structural slowdown”.

BBVA says China’s current growth momentum has been primarily driven by the authorities’ stepped-up efforts of counter-cyclical policy loosening.

“Meanwhile, a number of structural problems in the economy remain unaddressed and will continue to weigh on growth prospects in the next few years,” it says.

“Due to recent strong outturns of inflation, we are revising this year’s CPI projection upward from 1.7% to 2.3% while keeping next year’s projection unchanged at 2.7%.

Öf the global outlook, BBVA points to “low and fragile economic growth”.
 “The global economy has improved over the last three months, as the downward trend in world growth and the slump in the financial markets have both halted,” it says.

“However, the improvement in recent months is limited. The pace of global growth in the first part of 2016 will be between 2.6% and 3.0% YoY, still falling short of the average of 3.2% over the 2011-15 period.

“Another reason for caution is the deceleration in global trade, where the growth in goods and services is at its lowest levels since the collapse at the end of 2008.”

BBVA says the big central banks finally helped restore the situation in the Emerging financial markets, and that the risk of a dramatic adjustment in the exchange rate, once capital outflows have been curbed, has also been mitigated.

“As regards the Fed, the perspective of very slight interest rate hikes relies on the lack of immediate pressure from prices or wages and the effects of the complex global scenario on employment in the US.

“While FED and ECB policies helped prompt a sharp recovery in capital flows, the truth is that most of the recovery is stemming from risk appetite components, which could be very volatile.

“Thus, unless fundamentals improve over time, we will continue to be exposed to periods of volatility.
 
“The evolution of commodity prices, particularly oil, has also been positive in the last quarter.

“Prices have increased from levels so low that large dollar-indebted corporations from emerging markets were having troubling servicing their debt. This in turn triggered deterioration in markets and a negative wealth effect on spending in oil importing economies.

“The brighter global scenario is limited in scope and is fragile, however. It does not involve fundamental changes in the factors which cause a background of low growth with exposure to many different sources of uncertainty.

“Another reason for caution is the deceleration in global trade, where the growth in goods and services is at its lowest levels since the collapse at the end of 2008.”  www.bbvaresearch.com (ATI).