FXStreet (Guatemala) – Analysts at Deutsche Bank noted that China’s economy had a tough year in 2015 and said 2016 will likely be even more challenging.
Key Quotes:
“The current round of policy easing may help to boost growth in Q4 2015 and Q1 2016, but also exacerbate overcapacity and raise leverage, both damaging in the longer term. In mid 2016 the government may face a policy dilemma again. Downward pressure on growth will probably resurface, and force the government into further policy easing.
Given the undesirable side effects of policy easing, we believe the government may switch to a neutral policy stance in Q4 2015 once growth shows signs of stabilization. We expect the effect of policy easing will run out of steam in H1 2015 and growth will then face downward pressure again.
The key macro uncertainty in 2016 lies in the labor market. In spite of expectation of slower growth beyond 2016Q1, the prospect of unemployment is unclear. The best indicator in the market about labor condition is the ratio of job vacancies to job seekers.
We believe RMB depreciation will persist, albeit on a gradual basis.
SDR inclusion: structurally positive for China. The Executive Board of the IMF voted on Nov 30 to include the RMB as a fifth currency in the Special Drawing Rights (SDR) basket, along with the US dollar, the euro, the Japanese yen and the British pound. The new SDR basket with RMB will be launched on October 1, 2016, to provide lead time for the IMF, its members and other SDR users to adjust to the change.
“Main risks: More policy easing, while helpful to maintain growth, would exacerbate structural problems such as overcapacity and high leverage, making future adjustments even more challenging.”
(Market News Provided by FXstreet)