China’s economy appears to be stabilising at a robust growth rate, but long-term risk still remains, says Moody’s Investors Service.
The research house’s previous estimates had China’s growth rate at 6.3 per cent and 6.1 per cent for 2016 and 2017 respectively, but modest improvement in commodity prices coupled with better capital inflows indicate a stabilisation of the economy.
Moody’s vice president and senior analyst Madhavi Bokil said this improvement in China’s economy is good news for other economies.
“The slowdown and rebalancing of China's economy is likely to be gradual, thus we do not expect China to exert a significant drag on global growth prospects over the rest of 2016 and in 2017,” Ms Bokil said.
China’s economic stabilisation has also “moderated” headwinds facing emerging markets.
Nevertheless, Moody’s notes that delaying “the inevitable rebalancing and deleveraging” of China’s economy still increases medium to long-term risks.
“The sheer scale of leverage in the economy, with corporate debt at 166 per cent of GDP, exposes the economy to the risk of a rapid deterioration in the event of a negative shock,” the company warned.
“A significant deceleration in China’s real GDP growth could have significant spillovers for the global economy through trade and financial channels.”
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