CNY Outlook and Strategy

Published on - 4th May 2024

Navigating The CNY Landscape: Key Insights

  • China’s economy hit a growth rate of 5.3% in the first quarter of 2024, beating predictions. Yet, there are concerns about sluggish performance in areas like retail sales and industrial output, hinting at possible troubles in local demand.

  • The property sector is a notable weak spot, with cement output plunging by 22% in March, the steepest drop on record. This sector’s struggles are dragging down overall economic health.

  • To counter these challenges, the Chinese government has unveiled plans to stimulate the economy. These include investing in infrastructure and offering financial aid to encourage spending and business upgrades, aiming to balance out the slowdowns in certain sectors.

  • Inflation remains low, with consumer prices rising by just 0.1% in March, below expectations. Core inflation, which excludes volatile items like food and energy, also slowed, pointing to softer domestic spending. However, policymakers aim for a 3% inflation rate to keep prices stable.

  • The People’s Bank of China (PBoC) has maintained the one-year loan prime rate at a historic low of 3.45% in April, signaling a commitment to supporting economic activity. However, differences in inflation trends with the US might strain the yuan, affecting trade dynamics.

  • Moreover, weakness in the housing market and low demand for building materials are putting downward pressure on producer prices, adding to concerns about deflation. Increased price competition suggests these issues could linger, possibly requiring further monetary support to boost growth and manage inflation while averting the risks of deflation.

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