China: Further slowdown expected – Nomura

Research Team at Nomura, suggests that more cautious Chinese policy easing and a refocus on reforms support their view of real growth gradually slowing to 6.2% in 2016 from 6.9% in 2015.

Key Quotes

“We have lowered our PPI inflation forecast to -2.3% from -3.5% and trimmed CPI inflation forecast to 2.2% from 2.3% for 2016. We also removed our call for a reserve requirement ratio (RRR) cut in Q2 given recent more signs of cautious and targeted easing. Moreover, we also fine-tuned our quarterly forecasts for import and fixed asset investment (FAI) growth, but our full-year forecasts remain unchanged.

We expect the easing bias of monetary policy to remain but become more cautious, given already high leverage and rising financial risks after the renewed surge in property prices and rapid credit expansion in Q1. There are also signs that authorities are refocussing on reforms and the pace of progress on reforms may pick up. We now expect only two more 50bp RRR cuts and one 25bp interest rate cut in H2.”