Expectations for Chinese Economy Recover

The latest survey carried out between 17 October – 2 November 2016
indicates that expectations for the Chinese economy have slightly recovered
from the declines seen in August and September. The CEP Indicator, which
reflects the expectations of international financial market experts
regarding China’s macroeconomic development over the coming twelve months,
has increased by 4.0 points to a current total of minus 0.1 points.
However, the Indicator still lies significantly below its long-term average
of 5.4 points, seen in the period from mid-2013 to October 2016.

It is also worth noting that the assessment of the economic situation has
again improved considerably, just as in the previous month. The Index now
stands at 3.1 points, which corresponds to a rise of 13.9 points compared
to the previous month.

The surveyed experts expect the consumer price inflation to increase
significantly, to 2.2 per cent. This can be attributed to the overall
strong economic growth, an expected further considerable increase in the
money supply (M2), as well as to an expected significant depreciation of
the yuan to a new ratio of 6.99 yuan per US dollar. The increase in the
inflation rate in turn leads to a rise in interest rate expectations.
Lending rates are expected to hit a value of 4.3 per cent by October 2017.

According to the surveyed experts, domestic consumption – so far the main
driver of growth in the Chinese economy – is expected to decrease. With a
value of 18.4 points, however, the corresponding balance continues to be
well in the positive range. The decrease in expectations on domestic
consumption goes hand in hand with a shift in expectations concerning the
employment rate, which is expected to decline.

For more information please contact:
Dr. Michael Schröder, Phone +49(0)621/1235-368, E-mail schroeder@zew.de