Analysts at Wells Fargo point out China continues to lead the global economic recovery. They believe the trend in growth will fall below the government’s 6% target and they warn, that Chinese authorities could decide to halt the recent appreciation trend of the renminbi.
Key Quotes:
“China continues to lead the world in the containment of COVID as new confirmed cases are minimal.”
“Aggressive monetary and fiscal stimulus have been implemented and have been key to the pick-up in economic activity. The combination of virus containment and fiscal stimulus has resulted in China leading the global economic recovery and is reflected in upward revisions to our 2020 GDP forecast.”
“Despite the V-shaped recovery, vulnerabilities are still accumulating as China’s economy is highly leveraged and stimulus measures may be losing effectiveness. In a post-COVID world, we expect “trend growth” to fall below the government’s 6% target as stimulus measures wind down to manage imbalances, and policy space diminishes.”
“While strong underlying fundamentals and increased capital flows have supported the renminbi over the course of the year, Chinese authorities could very easily decide to halt, or at least temporarily disrupt, the recent appreciation trend of the currency. The PBoC could opt to set the daily fix of the renminbi much weaker or directly intervene in FX markets and sell renminbi in an effort to enhance the competiveness of China’s export sector.”
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