May 26, 2016 / 3:42 AM / a year ago

Fitch: China Policy Stimulus Supports Near-Term Growth Prospects

(The following statement was released by the rating agency) HONG KONG/LONDON, May 25 (Fitch) The Chinese government's determination to defend the country's growth targets and the impact of stimulus measures already taken will support Chinese economic growth in 2016 and 2017, Fitch Ratings says. But we forecast growth to drop below 6% in 2018, as the short-term boost from measures focused on increasing credit and investment fades. We have raised our Chinese real GDP growth forecasts for 2016 and 2017 to 6.3% in our May Global Economic Outlook, up by 0.1pp and 0.3pp, respectively, from our previous forecasts. Recent data point to a pick-up in housebuilding and infrastructure investment, which ought to benefit Chinese industry on a broader basis. Higher monetary growth targets at the March National People's Congress and official pronouncements show a policy focus on stabilising near-term growth at around the 6.5% target. We think this focus will remain at least until the 19th Party Congress in November 2017. However, a more sustainable improvement in growth would require better productivity performance, and rising debt is likely to weigh on private investment. We forecast growth to slow to 5.8% in 2018, and it is difficult to reconcile official growth targets with significant economic rebalancing and an easing of systemic risks associated with rising leverage. Elsewhere in the Asia-Pacific region, the mix of stimulus and structural reform in macroeconomic policy is also evident. Policy-rate cuts in India and Indonesia, for example, are likely to feed through to higher GDP growth. Monetary easing has been facilitated by external factors, as low oil prices have contained inflation and narrowed current account deficits, and the Fed has kept US rates on hold since December. But broadening reform agendas and government resolve to implement them in both countries also support our predictions of steadily rising GDP growth, which we forecast to reach 8.0% in FY18-HY19 in India, and 5.7% in 2018 in Indonesia. Reforms, such as Indonesia's effort to improve purchasing power and the business environment, could play an important role in maintaining growth momentum should the external environment deteriorate. Our 2016 and 2017 growth forecasts for Australia and South Korea are unchanged. Both countries are relatively dependent on global developments that can offset the benefits of historically low policy rates, and we see them posting GDP growth of between 2.6%-3.0% in 2016-2018. Japanese growth was better than most forecasters had expected in 1Q16, but that was partly due to a downward revision of 4Q15 reading. Our 2016 growth forecast for Japan in the May Global Economic Outlook is unchanged at 0.7%. Wage growth is subdued and the stronger yen could drag on net exports and corporate profits; and we see growth rates largely flat, at 0.6% in 2017 and 0.7% in 2018. The Bank of Japan has emphasised that it can engage in further easing, but it is not clear that its introduction of a negative-interest-rate policy is combating deflationary risks. Fitch Ratings' latest economic forecasts and outlook, including our global growth projections, based on the 'Fitch 20' aggregate of large developed and emerging economies, can be found in the "Global Economic Outlook" report, published on 25 May. The report is available at or by clicking on the link. Contact: Mervyn Tang Director Sovereigns +852 2263 9944 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Thomas Rookmaaker Director Sovereigns +852 2263 9891 Brian Coulton Managing Director Chief Economist +44 20 3530 1140 Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Global Economic Outlook - May 2016 here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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