China’s recovery set to lose steam in 2017 - Danske

Analysts from Danske Bank expect a moderation in the recovery in China going into 2017 with the stimulus effects fading.

Key Quotes:

“We expect to see some moderation in the recovery going into 2017 as the stimulus effects fade slightly, and the biggest boost to construction should fade as home sales growth has come down in response to regional tightening measures. We expect average GDP growth to be 6.6% in 2017 (consensus: 6.3%).”

“We expect monetary policy to be on hold for the rest of this year but expect to see a resumption of easing in Q2 17 as the cycle loses some steam. However, fiscal policy is the preferred tool for now as the government is concerned over rising leverage in the financial system and regional housing bubbles.”

“We look for a continuation of the weakening trend of the CNY, not least versus the EUR where we expect a 10% depreciation +12M. For 2016, we believe there is more upside as momentum is positive and the business cycle still supports profits. However, stock markets will be more challenged in 2017 as growth momentum fades a bit again.”