The real GDP growth of China is likely to moderate because of its dependence on industry, which is struggling from excess capacity, according to Scotiabank. It is becoming very clear that China is shifting toward a more services-oriented and consumer economy, noted Scotiabank. The services sector contributes around 50% to the economic activity, while its pace of growth has surpassed that of the industrial sector by a broader margin.

“Due to these rebalancing dynamics, we expect Chinese output expansion to slow to 6.4% this year and 6.2% in 2017 from 6.9% last year”, added Scotiabank.

The Chinese government is likely to focus on keeping a fairly stable economic environment to alleviate the unruly market volatility risk amidst carrying out its structural reform agenda, noted Scotiabank. Therefore, China is expected to introduce further fiscal intervention in the near term to offset the solid decelerating forces faced by the Chinese economy, said Scotiabank.

Meanwhile, the Chinese economy is likely to be underpinned by monetary stimulus this year. The People’s bank of China loosened its policy in early March by lowering the reserve requirement ratio by 50bps to keep liquidity in the banking system and underpin credit growth and money supply.

“We expect further monetary accommodation to be implemented in the near term, particularly in the form of targeted policy measures, such as open market operations”, noted Scotiabank.

In March, China’s consumer prices increased 2.3% y/y. Inflationary pressures are expected to be manageable over next year as overcapacity in industry has led to constant deflation in producer price. The headline inflation is expected to reach around 2¼% y/y in 2016, according to Scotiabank.

Meanwhile, China is likely to introduce additional fiscal stimulus in 2016 in order to underpin the economy. China’s budgetary deficit is expected to remain a tad more than 3% of GDP in 2016, said Scotiabank. According to IMF, the country’s gross public debt ratio is likely to average about 47% of GDP in 2016-2017.

“We estimate that China’s current account will maintain a surplus of 2½% of GDP in 2016-17, yet it has narrowed substantially over the past decade”, added Scotiabank.