PMI data showed further strength in the Chinese economy at the end of 2016. However, we look for a peak in growth soon and forecast a moderate slowdown in 2017. Policy is now de facto being tightened and the boost from infrastructure is fading. We expect exports to serve as a buffer. When growth slows in China, fears of a hard landing tend to resurface and it could very well intensify outflow pressure during the year.
Financial implications include rising tail risk from China and less support for (a) emerging market assets, (b) global risk appetite and (c) commodity prices when growth starts to slow. We expect downward pressure on the CNY to continue.
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