Expectations for Chinese Economy Worsen Further

Expectations for the Chinese business cycle have once again worsened in the current survey period (15/02/2016 – 02/03/2016). Falling to a level of minus 25.7 points, the CEP Indicator, which reflects the expectations of international financial market experts regarding China’s macroeconomic development over the coming twelve months, has reached the lowest value recorded since the survey was begun in mid-2013.

With growth expectations of 6.5 per cent for the current year and 6.4 per cent for 2017, the point forecasts for the Chinese GDP have dropped to the lower end of the target range of the new five-year plan. The CEP Indicator, however, reflects an increasing scepticism as to whether these goals can be achieved.

The measures to be implemented as part of the new five-year plan to stimulate the Chinese economic growth also have a certain influence on economic expectations: The money supply (M2) is reckoned to increase drastically, which in turn is expected to lead to slightly lower interest rates and to boost the inflation rate. The assessment of the construction sector is not as strongly negative as in the previous month as announced higher infrastructure spending is expected to lead to a better utilization of capacity in the construction industry. Private consumption is also expected to continue to develop positively.

The five-year plan is, however, not convincing when it comes to the expectations regarding the development of the stock market. For the next twelve months, further declines of the major indices are anticipated. Also, further tapping into currency reserves is likely to be the only way for the Central Bank of China to stabilize the exchange rate of the Yuan.

The assessment of the development of key economic regions reveals that Hong Kong has for some time been showing the by far weakest economic performance and even continues to fall further behind. Possibly, this is in particular due to the negative expectations concerning Chinese exports.

For further information please contact

Dr. Michael Schröder, Phone +49(0)621/1235-140, E-mail schroeder@zew.de