China data unchanged pessimistic outlook for economy, yuan

Investors remain in 'wait and see' mode when it comes to China, analyst says

Despite a flurry of upbeat economic data from China last week, including Retail sales and industrial production beat estimateseconomists are standing by their pessimism.

UBS lowered its full-year growth forecast from 3% to 2.7% for 2022 and from 5.4% to 4.6% for 2023.

“While some of the current policy support should yield more results in Q4, the Covid situation is likely to remain challenging into winter and early 2023, and export growth is expected. will slow down,” UBS China economist Tao Wang said in the note.

Wang added that the revised 2023 forecast is still based on a scenario in which the property market stabilizes soon and Covid restrictions ease from March onwards.

But those constraints have dragged investor sentiment down, and that’s unlikely to recover anytime soon, Mattie Bekink, China director of the Economic Intelligence Firms Network, said on CNBC’s “Squawk Box Asia.”

“We don’t see the pulled policy leverage needed to facilitate change,” she said of the nation’s zero-Covid policy. “Basically, zero-Covid has affected investor confidence in China.”

Commenting on the sporadic regional shutdowns across China, she said, “It’s a stalemate for the Chinese economy at the moment.”

Yuan is weaker

Economists also expect the Chinese currency to continue to weaken, even after Renminbi both at home and abroad fell to the lowest level as of July 2020 last week.

“We expect yuan weakness to persist in the near-term, underpinned in part by broad dollar strength,” the economists said. Goldman Sachs said in a note, adding the next key level to watch is 7.20, last tested in May 2020.

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UBS economists also expect the yuan to weaken further against the US dollar, due to “different US-China monetary policy trajectories and slowing Chinese exports.” UBS’ Wang sees USD/CNY trading around 7.15 by the end of 2022.

But with the 20th National Congress coming up on October 16, economists at Goldman Sachs don’t expect to see any sudden movement in the coin.

“We do not expect to see the yuan depreciate very sharply – as stability would take precedence in such an important political event,” they added.

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