China’s renminbi will likely remain weak for the rest of 2022
After strengthening for more than one-and-a-half years and having demonstrated resilience to global market volatility, China’s renminbi (CNY) weakened sharply in April and May. We forecast the renminbi to weaken close to CNY7/US$ in H2 (from CNY6.65-6.79 in May) before a rebound in 2023, assuming China’s economy will be on track to recover and moves beyond its zero-Covid policy next year.
What you will learn:
- Global investors’ appetite for Chinese assets will remain low as China’s outlook is highly uncertain due to the zero-Covid policy. Monetary policy divergence with the US will also weigh on the renminbi outlook.
- The possible easing of some US tariffs on Chinese products may provide optimism, but this will unlikely cause a major bounce back in the renminbi. Meanwhile, the risk of Chinese stocks forced to delist from US exchanges is looming, dampening the sentiment around Chinese assets.
- Despite steep renminbi depreciation in recent months, the People’s Bank of China has refrained from direct intervention. We believe the central bank will use other policy tools to stabilize the exchange rates when necessary, especially if the renminbi gets close to the 7 mark against the US$, which is widely seen as a key psychological level that could trigger significant outflows.
China buys up Russian crude rejected by the West
Monthly data from Russia's trading partners indicate a rapid reorientation of Russian exports towards Asian markets. In particular, the data shows the US dollar value of Russian exports to China soared by 40% y/y in January-April and was up 80% y/y in May when China ramped up purchases of Russian crude.Find Out More
World Economic Prospects: Global outlook to improve after a subdued H1
Ongoing lockdowns and restrictions in China have prompted us to lower our Chinese GDP growth forecast for this year and become more pessimistic about the easing of global supply chain bottlenecks. We have therefore lowered our global GDP growth forecasts by 0.4ppts to 3% in 2022 and by 0.1ppt to 3.1% in 2023.Find Out More
Supply chains navigate a difficult environment
Supply chain conditions remained highly strained in April, though cooling goods demand helped ease pressures modestly. Inflation stress increased for a fourth straight month. Challenges within logistics eased according to our tracker, but we take this reading with a grain of salt since the improvement was partly artificial as China's lockdowns slowed trade flows at US ports and weighed on business activity. Meanwhile, news from the labor and activity fronts was encouraging, and inventory dynamics modestly improved.Find Out More