Chinese real GDP growth likely to decelerate to 6 pct in 2018, inflation to hover slightly below 2.5 pct

China’s real economic growth is expected to continue to slowdown gradually due to the current economic transitioning. Authorities have recently underlined stability over rapid economic growth, but fiscal stimulus injections in infrastructure would possibly be continued, maintaining the country’s output growth at around 6.5 percent year-on-year in 2017, noted Scotiabank.

Real GDP growth is expected to slow down to 6 percent next year. Moreover, the Chinese consumer and services sector would be increasingly driving the economic activity, in addition to public outlays. China’s key trading partner is the U.S., which buys 20 percent of China’s total exports. Any changes in trade policy toward increased protectionism in the U.S. such as increased tariffs on Chinese goods shipped to the U.S. might negatively affect China’s economy. In spite of China’s economic rebalancing toward a consumer-driven economy, the country’s exports are still equivalent to nearly 20 percent of GDP.

Meanwhile, the People’s Bank of China has promised to keep a “prudent and neutral” monetary policy stance in 2017. It continues to fine-tune monetary conditions with targeted policy measures. The central bank hiked its interest rates on its open-market operations in early February, aiming to restrict credit growth and concentrate on financial deleveraging. The benchmark one-year loan and deposit rates have been maintained at 4.35 percent and 1.5 percent respectively since October 2015.

The main policy rates are unlikely to be changed in the months ahead. At the end of 2016, China’s producer price inflation recovered to 5.5 percent year-on-year, but price gains have focused on production rather than consumer goods categories.

“Consumer prices rose by 2.1% y/y in December; we assess that CPI inflation will remain manageable, hovering slightly below 2½% y/y through 2018”, added Scotiabank.