China: Fragile cyclical recovery – Danske Bank

Research Team at Danske Bank, is looking for a continued moderate recovery in Chinese activity over the coming quarters on the back of (a) stronger housing markets and (b) a gradual increase in export growth.

Key Quotes

“This follows a period of a very hard landing in the Chinese industry and construction sector.

While short-term growth is improving, China is still facing medium-term growth challenges from (a) overcapacity in many sectors, (b) a rising concern over debt levels and (c) a difficult transition from investment-led growth to consumer-driven growth. We continue to look for GDP growth of 6.7% in 2016 and 6.6% in 2017 in line with China’s growth target.

While China is still facing growth challenges in coming years, a strong focus on technology, R&D and innovation will, in our view, ensure that it continues to climb the development ladder in the long term by increasing efficiency through the rising use of technology and a higher education level – the real long-term growth drivers for all economies catching up. Hence, long-term opportunities persist in China – not least within the consumer and service area.

We look for CNY to continue to weaken on a trade-weighted basis over the next 12 months and there is a risk that outflows could pick up again at some point over the next one to two years.”