Economists raise China forecast after 1H growth

BEIJING • Economists raised their forecasts for China’s economic output after growth in the first-half (1H) beat estimates. That robust activity is giving policymakers’ room to curb excessive and speculative borrowing.

China’s gross domestic product will expand by 6.7% from a year ago in the third-quarter (3Q) and 6.6% in the 4Q, according to the median of 57 economist estimates in a July 17-24 Bloomberg survey. Both forecasts were 0.1 percentage point higher than a month ago.

The expansion in the 2Q beat market expectations and with growth this year on track to meet the government’s target, policymakers will have more leeway to act to contain risks and achieve stability, a priority that was identified at a toplevel financial work conference earlier this month.

“The expansion in the 2Q is a positive sign, as it highlights the resilience of China’s economy in the face of Beijing’s efforts to curb excessive borrowing to diffuse financial risks,” Carlos Casanova, economist at Coface in Hong Kong wrote in a note.

“The authorities need to maintain a well-oiled machine” ahead of the 19th Party Congress in the fall, he said.

“For this reason, we do not envision an abrupt deceleration in the 3Q, but there is little room for further policy tightening going forwards.”

Expectations for inflation slowed slightly, with forecasts for both consumer and producer prices lower than last month.

Consumer prices will rise 1.8% in the 3Q, and then 2% in the 4Q. Factory gate inflation has peaked, and The producer price index will slow to 4.8% in the three months through September, before dropping further to 2.5% in the 4Q.

Economists also expect the People’s Bank of China to keep policy on hold: Benchmark interest rate and required bank reserve ratio projections seen unchanged for the rest of the year, while M2 money supply will rise 9.8% this year, versus 10.1% seen in June’s survey. — Bloomberg