24 Dec 2015
China risks from growth and RMB devaluation – Goldman Sachs
FXStreet (Delhi) – Research Team at Goldman Sachs, suggests that Chinese growth and policy concerns are likely to continue in 2016.
Key Quotes
“Our economists expect China’s bumpy deceleration to continue – they forecast real GDP growth of 6.4% in 2016 (2015: 6.9%), which is the lowest level since 1989. There is continued skepticism on the ‘real’ pace of growth in China and leverage/bad debt concerns are likely to linger, in our view. Our economists’ new China currency activity indicator (CAI) implies weaker growth than the official GDP estimates – using the CAI as a forecast reference would result in a 2016 growth forecast of 5%.
Also, sharp appreciation of the dollar puts more pressure on China. Decelerating growth in China combined with the CNY dollar peg can increase pressure for another CNY devaluation. Our economists are concerned that the SDR decision will fade into memory and the focus for Chinese policy makers will shift to the sharp appreciation of the CNY on a trade-weighted basis, reducing China’s export competitiveness. While we believe markets will digest future CNY depreciations better than in August, the speed of Fed hike normalization and how China manages its currency in the face of slowing growth will be a key determinant of potential spillovers from China into global markets.”
Key Quotes
“Our economists expect China’s bumpy deceleration to continue – they forecast real GDP growth of 6.4% in 2016 (2015: 6.9%), which is the lowest level since 1989. There is continued skepticism on the ‘real’ pace of growth in China and leverage/bad debt concerns are likely to linger, in our view. Our economists’ new China currency activity indicator (CAI) implies weaker growth than the official GDP estimates – using the CAI as a forecast reference would result in a 2016 growth forecast of 5%.
Also, sharp appreciation of the dollar puts more pressure on China. Decelerating growth in China combined with the CNY dollar peg can increase pressure for another CNY devaluation. Our economists are concerned that the SDR decision will fade into memory and the focus for Chinese policy makers will shift to the sharp appreciation of the CNY on a trade-weighted basis, reducing China’s export competitiveness. While we believe markets will digest future CNY depreciations better than in August, the speed of Fed hike normalization and how China manages its currency in the face of slowing growth will be a key determinant of potential spillovers from China into global markets.”