China’s GDP growth forecast has been raised, but S&P Global Ratings says the country’s economic trajectory is still “unsustainable”.
Stronger than expected GDP data for the second quarter of 2016 has resulted in S&P Global Ratings increasing its China growth forecasts for 2016 and 2017 by about 0.25 per cent each, reaching 6.6 per cent for 2016 and 6.3 per cent for 2017.
Despite this, S&P Global Ratings Asia-Pacific chief economist Paul Gruenwald said China’s economic wellbeing has not improved.
"Our higher growth forecasts don’t mean that we think the health of the Chinese economy has improved. Instead, it shows we overestimated the authorities’ appetite for slower GDP growth as the price for improving medium-term financial sustainability," he said.
S&P Global Ratings noted that credit growth has been moving at a speed almost twice that of nominal GDP growth, further increasing the risk to the Chinese economy.
"While we gauge the risk of a near-term correction in China as relatively low, these risks will continue to rise over time if the credit-heavy pattern of GDP growth is not corrected," Mr Gruenwald said.
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