Daily Insight
Group Economics Macro & Financial Markets Research
8 March 2016
China targets 6.5-7% growth in 2016 Arjen van Dijkhuizen Senior Economist Tel: +31 20 628 8052 arjen.van.dijkhuizen@nl.abnamro.com
As expected, China introduces target range of 6.5-7% for economic growth
Beijing aims to continue with prudent fiscal and monetary stimulus
Pace of decline of China’s FX reserves eased sharply in February
Germany’s factory orders start the year on a weak note
Aline Schuiling Senior Economist Tel: +31 20 343 5606 aline.schuiling@nl.abnamro.com
China introduces 6.5-7% target range for economic growth in 2016 Last weekend, at the start of the annual National People’s Congress, China’s Prime Minister Li Keqiang presented the proposals for the government’s work plan for 2016 to congress. As some ingredients from the plan had already been discussed publicly, these proposals did not contain many surprises. For the first time, the Chinese government presented a target band for economic growth instead of a “single-point” target. After having just missed the 2014 (7.3% versus 7.5%) and 2015 (6.9% versus 7%) targets, the government now sets a range of 6.5-7%. This shift echoed statements from the National Development and Reform Commission earlier this year and was in line with market expectations, including ours. Our growth target for 2016 of 6.5% is at the bottom of this range and in line with consensus. We expect China’s economic slowdown to remain gradual, assuming the authorities will add further stimulus. However, China’s soft landing will remain bumpy, given that China faces several key macro-financial risks that complicate the desirable transition of the country’s growth model. Authorities aim to continue with prudent fiscal and monetary stimulus Looking at some of the other targets proposed by PM Li, it seems that the government indeed aims to continue with prudent fiscal and monetary policy stimulus to keep the economic slowdown gradual in nature. As we have indicated earlier (see our February China Watch, Balancing act goes on in Year of the Monkey), the authorities are putting more focus on fiscal stimulus, for instance by reducing taxes for corporates. The fiscal deficit target will be raised to 3% of GDP, from 2.3% of GDP last year. This is in line with our budget deficit forecast, although some analysts had expected more. We should bear in mind, though, that a significant part of fiscal stimulus in China takes place off-budget (IMF estimates for the fiscal balance including off-budget activity is around 10% of GDP). Meanwhile, the inflation target is unchanged at 3%, while the target for M2 growth is set around 13%, slightly up from the 2015 target of 12%. A new target was introduced for
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Daily Insight – China targets 6.5-7% growth in 2016- 8 March 2016
aggregate financing (around 13%), while the traditional targets for export and import growth were dropped. All this suggests that there is still some targeted monetary easing on the cards, although we expect the PBoC to be more careful with regard to the timing of monetary easing measures given uncertainties related to the exchange rate and capital outflows. The authorities have also indicated that they will put more effort into supply side measures in the coming years to support longer-term growth prospects, focusing on reducing overcapacity (and jobs) in sectors such as heavy industry and real estate and proceeding with SOE reform. All in all, the authorities will have to continue their careful balancing act, finding a proper balance between stabilising economic growth and safeguarding financial stability.
Decline in China’s FX reserves eases in February USD trn.
USD bn.
4
150 100
3 50 0
2
-50 1 -100 -150
0 04 05 06 07 08 09 10 11 12 13 14 15 16 Monthly change (rhs)
FX reserves, stock (lhs)
Source: Thomson Reuters Datastream
Pace of decline China’s FX reserves dropped sharply in February Meanwhile, the slide in China’s FX reserves eased significantly in February. FX reserves fell by USD 28.6bn to USD 3.2trn, whereas markets had expected a decline of USD 41bn. In fact, this drop was significantly lower than the average decline of USD 98bn in November 2015-January 2016. This is indicative of an easing of capital outflows, following recent statements by the PBoC governor pointing to exchange rate stability and other measures taken to stabilise the CNY versus the US dollar (e.g. FX intervention, stronger USDCNY fixing) and to curb capital outflows. It should also be taken into account that part of these capital outflows relate to Chinese entities starting to hedge USD exposure and/or repaying FX loans and to the unwinding of carry trades; these kind of outflows are not really ‘disruptive’ but are in fact reducing FX risks for China Inc. Germany’s factory orders decline in January Orders received by Germany’s industrial sector fell by 0.1% mom in January, following a 0.2% decline in December (revised upward from -0.7%). Since the monthly changes in orders tend to be very volatile we assessed the detailed data by looking at the total change in December 2015 and January 2016. Domestic orders fell by 3.1% in this two-month period, whereas foreign orders increased by 1.8%. Within the foreign orders, the orders from other eurozone countries rose modestly (+0.4%). Meanwhile orders from countries outside the eurozone jumped by almost 3%. Although the data are too volatile to draw very strong conclusions, they seem to be in line with our view that the German economy and the eurozone as a whole lost some momentum in the first quarter of this year.
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Daily Insight – China targets 6.5-7% growth in 2016- 8 March 2016
Day
Date
Time
Country
Monday Monday Monday
07/03/2016 07/03/2016 07/03/2016
08:00:00 09:00:00 21:00:00
DE CH US
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
08/03/2016 08/03/2016 08/03/2016 08/03/2016 08/03/2016 08/03/2016
00:50:00 08:00:00 11:00:00 12:00:00
Wednesday Wednesday
09/03/2016 09/03/2016
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Friday Friday Friday
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
Manufacturing orders - % mom Foreign currency reserves - CHF mln Fed Reserve consumer credit - USD bn
Jan Feb Jan
-0.1 571.1b 10.5
-0.2
0.0
15.3
JP DE EC US CN CN
GDP - % qoq Industrial production - % mom GDP - % qoq NFIB small business optimismem - index Exports - % yoy Imports - % yoy
4Q F Jan 4Q P Feb Feb Feb
-0.3 -1.2 0.3 93.9 -11.2 -18.8
-0.4 1.4 0.3 94.2 -14.5 -10.1
0.3 94.0
16:00:00
CA NZ
Policy rate - % Policy rate - %
Mar 9 Mar 10
0.5 2.5
0.5 2.5
0.5 2.5
10/03/2016 10/03/2016 10/03/2016 10/03/2016 10/03/2016 10/03/2017 10/03/2016 10/03/2016 10/03/2016 10/03/2016 10/03/2016
02:30:00 02:30:00 06:30:00 13:45:00 13:45:00 14:30:00 14:30:00 15/03/2016 15/03/2016 15/03/2016
CN CN NL EC EC EC US CN CN CN KR
CPI - % yoy PPI - % yoy CPI - % yoy ECB Deposit rate - % ECB Refi Rate - % ECB Press Conference Initial jobless claims M2 money growth - % yoy New loans - CNY bn Aggregate financing - CNY bn Policy rate - %
Feb Feb Feb Mar 10 Mar 10
1.8 -5.3 0.6 -0.3 0.05
1.9 -4.9 -0.4 0.05
0.6 -0.5 0.05
Feb Feb Feb Mar 10
278.0 14.0 2510 3417 1.5
275.0 13.7 1200 1780 1.5
1.5
11/03/2016 11/03/2016 11/03/2016
08:00:00 10:30:00
DE GB PL
CPI - % yoy Trade balance - GDP mln Reference rate - %
Feb F Jan Mar 11
0.0 -2709 1.5
1.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
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