China data isn’t changing pessimistic outlook for economic system, yuan

Despite an upbeat batch of financial data from China final week, together with retail gross sales and industrial manufacturing beating estimates, economists are standing by their pessimism.

UBS downgraded its full-year development forecasts from 3% to 2.7% for 2022 and from 5.4% to 4.6% for 2023.

“While some of the current policy support will bear more fruit in Q4, the Covid situation will likely remain challenging into the winter and early 2023, and export growth is set to slow,” UBS chief China economist Tao Wang mentioned within the notice.

Wang provides that the revised 2023 forecast remains to be based mostly on a state of affairs the place the property market stabilizes quickly and Covid restrictions ease from March onward.

But these restrictions have dragged down investor sentiment and that is unlikely to rebound any time quickly, Mattie Bekink, China director for the Economist Intelligence Corporate Network, mentioned ­­on CNBC’s “Squawk Box Asia.”

“We’re not seeing the policy-levers being pulled necessary to facilitate a change,” she mentioned of the nation’s zero-Covid coverage. “Essentially zero-Covid has stomped on human investor confidence in China.”

Why China shows no sign of backing away from its 'zero-Covid' strategy

Commenting on sporadic regional lockdowns throughout China, she mentioned, “It’s kind of a chokehold on China’s economy at the moment.”

Weaker yuan

Economists additionally count on the Chinese forex to proceed to weaken, even after the onshore and offshore yuan each fell to their lowest ranges since July 2020 final week.

“We expect CNY weakness to persist in the near-term, underpinned partly by broad USD strength,” Goldman Sachs economists mentioned in a notice, including the following key stage to observe is 7.20, which was final examined in May 2020.

Read extra about China from CNBC Pro

UBS economists additionally predict the yuan will weaken additional towards the U.S. greenback, given the “diverging U.S.-China monetary policy trajectories and slowing Chinese exports.” UBS’ Wang sees USD/CNY buying and selling round 7.15 by the top of 2022.

But with the twentieth National Congress approaching on Oct. 16, economists at Goldman Sachs do not count on to see any sudden actions for the forex.

“We do not expect to see very sharp depreciation in the CNY – as stability would be preferred around such a key political event,” they added.

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