S&P raises China's annual growth forecasts for 2016 and 2017

S&P Global Ratings on Monday raised China's annual growth forecasts for 2016 and 2017, following a stronger-than-expected the second quarter GDP print. S&P now expects China's real GDP expanding at 6.6 percent this year and 6.3 percent next year, both about 0.25 percentage points higher than its previous forecasts. 2018 GDP growth is forecast remains at 6.0percent.

“Our higher growth forecasts don't mean that we think the health of the Chinese economy has improved. Instead, it shows we overestimated the authorities’ appetite for slower GDP growth as the price for improving medium-term financial sustainability,” said S&P Global Ratings Asia-Pacific Chief Economist Paul Gruenwald.

S&P expressed concern about rising debt levels and said that the current trajectory of the economy is unsustainable, given that credit growth has been running at about twice the pace of nominal GDP growth.

“While we gauge the risk of a near-term correction in China as relatively low, these risks will continue to rise over time if the credit-heavy pattern of GDP growth is not corrected,” said Mr. Gruenwald.