Near-Term Chinese GDP Revised Upward

Recent data highlighting an uptick in house building and infrastructure investment are among the factors that led Fitch Ratings to revise upward its GDP forecast for China this year and next.

The Chinese government has demonstrated determination to uphold near-term growth targets, while recent stimulus measures will likely support Chinese economic growth in 2016 and 2017 at an estimated 6.3% GDP growth rate, Fitch Ratings said. That rate represents an upward revision from prior expectations by the ratings agency of 0.1 and 0.3 percentage points, respectively.

“Higher monetary growth targets at the March National People's Congress and official pronouncements show a policy focus on stabilizing near-term growth at around the 6.5% target,” the firm said in a recent release. “We think this focus will remain at least until the 19th Party Congress in November 2017.” Still, that growth could slow to 5.8% by 2018, hampered by productivity and a rising debt load that may impact private investment.

Other Asia-Pacific countries also show signs of the government’s mix of stimulus and structural reform at the macroeconomic level, the ratings agency said. For instance, police-rate cuts in India and Indonesia should result in higher GDP growth, while low oil prices have managed to restrain inflation and reduce account deficits. Further, policymakers’ resolve to institute reforms that should translate into 8% growth in India in 2018-2019 and 5.7% growth for Indonesia in 2018. “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,” Fitch Ratings economists said.

Historically low policy rates in Australia and South Korea should offset these nations’ dependence on global developments and maintain GDP growth in the 2.6% to 3% range through 2018.

In Japan, Fitch Ratings sees ongoing tepid growth of about 0.7% until 2018, as wage growth remains slow and a stronger yen threatens to reduce net exports and corporate profits. “The Bank of Japan has emphasized 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,” the firm said.

- Nicholas Stern, editorial associate

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