IMF, Goldman Sachs Paints Rosy Picture Of China Economy

IMF, Goldman Sachs Paints Rosy Picture Of China Economy
April 11, 2019

 

The Chinese yuan is losing ground against some of its major competitors midweek. The weakness is surprising due to the fact that the world’s second-largest economy got back a portion of its lost confidence this week as several analysts and investors are cautiously bullish that Beijing could put up a strong show for the rest of 2019.  In the past 24 hours, the USD/CNY pair has rallied from a low of 6.7160 to a high of 6.7262 and was trading at 6.7205 levels at the time of writing this article.

 

IMF and major financial institutions issue optimistic view of China’s economy

According to the (International Monetary Fund) IMF, China’s economy is forecast to expand by 6.3% in 2019, up from the earlier outlook of 6.2%. Its recent world economic growth outlook is not bullish for 2020, with updated outlook calling for a GDP growth of 6.1%, which is a notch lower than the 6.1% projected earlier.

IMF researchers say that monetary and fiscal stimulus compensates for the losses caused by the trade war between the USA and China, but there are several potential risks over the next few years.

IMF research report states: “China has ramped up its fiscal and monetary stimulus to counter the negative effect of trade tariffs. Furthermore, the outlook for US-China trade tensions has improved as the prospects of a trade agreement take shape.

While the overall outlook remains benign, there are many downside risks. There is an uneasy truce on trade policy, as tensions could flare up again and play out in other areas (such as the auto industry) with large disruptions to global supply chains. Growth in China may surprise on the downside.”

The IMF is not the sole organization which is optimistic about the economic rebound in China. Goldman Sachs, Morgan Stanley, and HSBC Holdings have lifted their projections, referring to tax reductions, headway in the US-China trade discussions and strengthened industrial production. Morgan Stanley’s economists are becoming progressively bullish because of increasing possibility of robust credit information, sustaining trade volumes and reasonable reversal in factory prices.

In a note to clients, Ethan Harris, head of global economics research at Bank of America Merrill Lynch, said: “Policy makers have responded to the U.S.-China trade war with a ’do-whatever-it-takes’ approach to supporting growth, taking on a wide array of easing measures. Financial conditions have started to improve and the large increase in the March manufacturing PMI might be the first indication that economic activity is bottoming out.”

Citing property sector, investment banking giant Goldman Sachs has said that land purchase and sale data and prices in the secondary market indicate that sentiment has bettered since March, supported by strong inventories and anticipations for policy loosening.

HSBC economists, Qu Hongbin and Julia Wang, have forecast that tax cuts announced last month are equivalent to more than 2% of anticipated 2019 gross domestic product. The analysts believe that the cuts and other measures will result in recovery on a self-sustained basis.

The most recent Reuters poll anticipates a rebound in Chinese exports in March. The survey results also indicate that imports will potentially shrink for the fourth successive month. Reuters’ survey of economists expects 7.3% y-o-y increase in exports last month, after recording a 20.8% decline in February. The study also predicts a 1.3% drop in imports for the same period. According to the China Academy of Information and Communications Technology (CAICT), mobile phone imports by China declined 6% to 28.4 million units last month, representing the fourth consecutive month of double-digit slides.

The optimistic reports by analysts and IMF are expected to turn the yuan bullish.

yuan - technical analysis - 11th April 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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