Amy Yuan Zhuang, analyst at Nordea Markets, suggests that for the Chinese economy, trade tensions are the new normal as evident from the recent trade talk breakdown between the US and China.
Key Quotes
“We still expect a trade deal but not one that will be sustainable. The negative growth impact on China will likely be offset by stimulus.”
“We do not expect a resolution in the coming weeks before a possible meeting between Trump and Xi at the G20 summit in late June. It is possible that the US will impose new tariffs to exert maximum pressure on China, which would worsen risk sentiment further and keep the Chinese yuan weak.”
“Tensions between the US and China will likely become the new normal. While we expect a cosmetic trade deal at the end of this year, we also expect further disputes between the two countries in the longer run. Although this is bad news for Chinese growth, we expect government stimulus to offset most of the negative impact.”
“The CNY faces mainly downside risk in the near term, as trade uncertainty lingers. USD/CNY rate will most likely stay below 7.0, as the PBoC is eager to avoid capital flight from China.”
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