Optimistic forecasts for China’s recovery

Optimistic forecasts for China’s recovery

2020-06-24 • Updated

China was the first country that entered the coronavirus crisis, that’s why it should be the first out. However, the recent resurgence of new infections in Beijing made some investors worry about the second round of downturn. Today new virus cases decreased sharply. Let’s see how economists changed their predictions for the China’s rebound.

Positive overview

Most analysts upgraded their projections for the Chinese economic growth. They increased their forecast for GDP from 1.2% to 1.5% in the second quarter from a year earlier, according to the Bloomberg’s survey. Aidan Yao, senior economist at AXA SA in Hong Kong, said:

“With industrial production and services output both resuming growth, we now expect a positive GDP growth print for the second quarter”.

It seemed that the second largest economy may avoid the full-year recession after the historic contraction by 6.8% in the first quarter.

Mixed outlook

However, not every analyst has so optimistic prospects. The main reason of concerns is the reduced consumption. Many people lost their jobs and others had pay cuts. It will take a lot of time for most people to find new jobs. The central bank assured that it would expand its support measures to boost the domestic demand. It would offer interest-payment holidays and more credits to businesses. Moreover, economists anticipate that the People’s Bank of China will extend benefits for banks: decrease reserve ratios to 11.5% from 12.5%. However, it may be not sufficient enough. According to CBB International, most significant indicators of economic health such as manufacturing outputs, capital expenditures and retail sales are still well below pre-crisis levels. At the same time, Bloomberg strategists are confident that the industrial output and fixed-asset investments will grow in the next quarter.

What does it mean for a trader?

Since the Chinese economy is the second-largest world economy, investors will look closely at the speed of Chinese recovery to understand how much time it will take for the global economy to return to pre-crisis levels. Moreover, the US dollar has shown the recent downward trend. The combination of growing Chinese economy and the weak US dollar will push the Chinese yuan upward.

Technical tips

The USD/CNH has been declining sharply since the end of May and set a strong bearish trend. Then, it entered the horizontal corridor in a range between 7.0525 and 7.0920 at the beginning of June.  Most analysts have bearish prospects for this pair. The move below the support at 7.0525 will push the price even lower to 7.045 where the 200-day moving average lies. Otherwise, if the price crosses the resistance at 7.0920, it may jump to 7.100 at the 50-day moving average. Follow news further and join the market momentum!

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