China: Growth likely to beat target with fiscal expansion – Standard Chartered

Analysts at Standard Chartered note that growth in China slowed moderately in H1 mainly due to tighter domestic policies and the US-China trade tensions may cause a sharper deceleration in H2.

Key Quotes

“The recent Politburo meeting called for a greater role of fiscal policy in expanding domestic demand, and a measured pace of deleveraging. We see the policy shift as a sign that the government will make every effort to achieve its 6.5% growth target for this year, in order to bolster confidence in a trade showdown with the US.”

“We think there is substantial room for fiscal policy to be expansionary without a revision of the budget. Budget implementation in H1 points to the risk of deficit undershooting, again. If the budget is fully implemented, fiscal deficit would be 0.9% of GDP (or CNY 1.1tn) higher than last year, according to our calculation.”

“We raise our 2018 growth forecast to 6.6% from 6.5% due to better-than-expected H1 performance and demand-supporting policies.”

“Growth will likely slow further in the next few quarters due to weaker exports and the lagged effect of tight credit, but the expected fiscal stimulus can help curb the downside in our view. We now forecast growth of 6.5% y/y and 6.4% y/y in Q3 and Q4, respectively.”