Strong fiscal support buoys China's economy

Morgan Stanley sees China economy growing by 6.7% in 2016.

Morgan Stanley raised its GDP growth forecasts for China to 6.7% in 2016 and 6.4% in 2017,up from 6.4% and 6.2%, respectively.

The numbers it said are slightly above consensus, mainly reflecting cyclical momentum thanks to strong fiscal support,and better than expected external demand.

Morgan Stanley alsod revise its PBoC rate forecast to no cut in 4Q2016.

"The ongoing mini-cycle upturn has lasted longer than we expected, largely driven by the strong fiscal support through investment activity and car sales over the past few months. External demand has also been tracking better than we expected despite the UK's vote to leave EU," it said.

The research firm added that Incoming data suggest that 3Q GDP growth is tracking at 6.7%, stable vs.2Q.

"We think 4Q growth is likely to hold up well,and therefore raise our 2016 GDP growth forecast to 6.7% from 6.4%," it explained.

Morgan Stanley also raised its 2017 growth estimate by 0.2ppt, to 6.4%, considering a higher entry point. However, it still expects growth to moderate in 2017 in view of a likely slowdown in car sales and the housing market owing to reduced policy support.

"Recent cyclical growth momentum has also boosted producer prices, led mainly by commodity prices. Our simulations suggest that the PPI could turn positive in YoY terms in November and rebound further in 1Q2017," it said.