The most significant political & economic event since the publication of our 2017 China macro outlook was the election of Mr. Donald Trump as the next president of the US. The reform plan proposed by Mr. Trump has notably boosted the global expectation of inflation & economic growth, especially the former. The decision to restrain from capacity expansion by the OPEC on November 30 lifted oil price further. Although there are still considerable uncertainties surrounding Mr. Trump’s policy package & its execution, our baseline assumption is that Mr. Trump will be able to deliver some of the policies listed in his “100 Day Plan”. In this note, we adjust our outlook for growth, inflation, and economic policies in China based on this (baseline) assumption.

We raise our 2017-2018 real GDP growth forecast to 6.7% YoY and 6.7% YoY, from 6.6% and 6.5%. All considered, we see a potential boost to exports from a stronger cyclical impulse in the US.

We raise our year-avg. CPI forecast to 2.5% & 2.4% for 2017 and 2018, from 1.7% & 1.8%. We also revise up our 2017-18 PPI forecast notably to 3.6% & 3.1% from 1.9% & 1.0%.

Consequently, we see visibly higher nominal GDP growth in 2017-2018 at 9.3% YoY and 9.2% YoY – faster nominal output growth indicates more upside to corporate profit growth. Meanwhile, we reiterate our view of continued economic reflation in China next year, even without the “Trump Stimulus”.

We expect no RRR or rate cut next year. Monetary policy may stay prudent against the backdrop of rising inflation. Market interest may continue to rise, consistent with the PBOC guidance.

In light of stronger USD outlook, we adjust our 2016-17 year-end USD/CNY forecast to 6.98 and 7.18, respectively.

Although fiscal policy may maintain an accommodative stance overall, there is unlikely to be incremental expansion of the broadly-defined fiscal deficit given our forecast of a recovery of private investment growth and rising inflation.

Continued reflation and rising inflation expectations may benefit the industrial sectors with tighter supply, esp. the mid-to-downstream industries as the cycle progresses. Consumption sector will likely enjoy volume and margin expansions too, particularly those with differentiated products & strong pricing power.

The main risks to our forecast include harsher-than-expected property tightening in China, overly-tightening of the financial conditions due to missteps in handling financial deleveraging, and weaker-than-expected external demand.