Economists raise GDP forecast after growth beats estimates

Economists raised their forecasts for China’s economic output after growth in the first half beat estimates. That robust activity is giving policy makers’ room to curb excessive and speculative borrowing.

China’s gross domestic product will expand by 6.7 percent from a year ago in the third quarter and 6.6 percent in the fourth quarter, according to the median of 57 economist estimates in a July 17-24 Bloomberg survey. Both forecasts were 0.1 percentage points higher than a month ago.

The expansion in the second quarter beat market expectations and with growth this year on track to meet the government’s target, policy makers will have more leeway to act to contain risks and achieve stability, a priority that was identified at a top-level financial work conference earlier this month.

“The expansion in the second quarter is a positive sign, as it highlights the resilience of China’s economy in the face of Beijing’s efforts to curb excessive borrowing to diffuse financial risks,” Carlos Casanova, economist at Coface in Hong Kong wrote in a note. “The authorities need to maintain a well-oiled machine” ahead of the 19th Party Congress in the fall, he said. “For this reason, we do not envision an abrupt deceleration in the third quarter, but there is little room for further policy tightening going forwards.”

Expectations for inflation slowed slightly, with forecasts for both consumer and producer prices lower than last month. Consumer prices will rise 1.8 percent in the third quarter, and then 2 percent in the fourth quarter. Factory gate inflation has peaked, and PPI will slow to 4.8 percent in the three months through September, before dropping further to 2.5 percent in the final quarter. Bloomberg