China to slow further on deleveraging need, says ANZ

HONG KONG - As China’s deleveraging process continues, ANZ Bank is forecasting that GDP growth will slow to 6.4% in 2016, and hit a trough of 6.0% in 2017. “As the deleveraging process is more or less completed, a gradual rebound in growth could start in 2018, together with a upward property market cycle and political business cycle,” ANZ says.

“We believe that China can achieve 6.5% growth on average from 2016-2020 provided the Government takes decisive measures to tackle the highly indebted corporate and local government sectors.”
ANZ says CPI inflation will likely continue to slide in 2016 on depressed commodity prices and weak domestic demand. In the medium term, the CPI should remain moderate as growth remains anaemic. “We forecast the CPI to fall further to around 1% in 2016, while slowly trend up in 2017.”
As the bank sees it, rising deflation risk and continuous capital outflow suggest that China’s monetary policy is bound to ease further. “We expect the PBoC to cut the reserve requirement ratio (RRR) by a total of 200bps in 2016,” ANZ says.
“Meanwhile, the PBoC will continue to experiment with the interest rate corridor system, and the interest rate charged on the Standing Lending Facility (SLF) could be lowered further by at least 100bps.
“In the next two years, policymakers will need to tolerate a period of slower-than-expected growth while pushing forward urgent reforms, such as SOE restructuring and privatisation, land reform, and relaxation of the hukou system.” www.live.anz.com (ATI).