The coronavirus outbreak is hurting Chinese growth this year and jeopardizing an important growth target. Amy Yuan Zhuang, Chief Asia Analyst at Nordea, expects activity resumption and government stimuli to stage a strong rebound later this year, but some policy actions are likely to exacerbate the systemic risks in the medium term. USD/CNY trades at 6.9386.
Key quotes
“We estimate that the economy will grow by barely 3% y/y in Q1, versus our previous forecast of 6%. Due to an expected rebound in Q2 and Q3, we expect full-year GDP growth at 5%, an all-time low for China. The risk is on the downside, in our view, as the rapid spread of the virus among China’s trading partners could have a spill-back effect on Chinese growth.”
“To maintain economic and social stability, Beijing has once again turned to infrastructure investment to support growth. Half of China’s provinces have plans to spend a total of CNY 6.6tn (about 6% of GDP) this year on transportation, energy, high-tech sectors and healthcare. Other provinces will likely follow suit.”
“The CNY has appreciated nearly 2% in less than two weeks in anticipation of a rate cut from the Fed. Now it has happened and the ball is back in the PBoC’s court. We expect the PBoC to cut the benchmark lending rates to support growth while curbing further upside to the CNY.”
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