Country Economic Forecasts > China

GDP growth forecast for 2016 raised to 6.7% after better than expected Q3 outturn

The Chinese economy grew by 6.7% in Q3, the same pace as in H1. Meanwhile, in September, overall fixed asset investment (FAI) growth picked up further, reflecting stronger real estate investment growth (amid surging housing sales and rapid price increases in Tier 1 cities) and strengthening corporate FAI growth, supported by a recovery in industrial profits as output prices rise again. However, we estimate that manufacturing sales volume growth moderated further in Q3, with downward pressures on industry not having disappeared and export volume growth softening again as global demand recovers only gradually and remains susceptible to setbacks.

After the better than expected growth outturn in Q3, we have nudged up our GDP growth forecast for 2016 to 6.7% from 6.6% last month. However, growth remains vulnerable to downward pressures. And with GDP growth targets unnecessarily high, the government will have to keep fiscal and monetary policy expansionary. But with the current pace of credit growth clearly unsustainable, the big question for 2017 and beyond is whether the authorities will continue to aim for overly ambitious GDP growth targets or start to rein in credit growth to put growth on a more sustainable footing.

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