China: Structural growth slowdown continues – Deutsche Bank

Analysts at Deutsche Bank believe that China’s structural growth slowdown continues despite stronger momentum in early 2017 and suggest that downside risks could rise in 2018.

Key Quotes

“China’s structural growth slowdown continues despite better than expected momentum in early-17

− Growth likely peaked in Q1 

− Momentum expected to slow gradually toward 6.5% by year-end and 6.3% in 2018”

“Property cycle continues to cool, but it is not collapsing 

− Housing starts, property sales slowed in May

− Gradual slowdown likely to continue as mortgage rates rise”

“Solid growth allowed policy makers to push a tighter stance; this is unlikely to change in next few months

− Tighter financial regulation to continue in Q3”

“If growth slows by end of Q3, as we expect, policy stance will have to shift back toward loosening

− Government will not want growth to slow below 6.5% before National Congress in Q4”

“We are more concerned about risks in 2018

− Financial sector deleveraging has been positive

− But prospects for higher inflation in ’18 could constrain PBoC’s ability to support growth”