China macro monitor: Bottoming out

Allan von Mehren Danske Bank A/S

Outlook: The overall picture is still one of weakness, but policy easing has started, which should pave the way for a moderate recovery in GDP growth and PMI’s this year. The short term picture is still weak, though, as the headwind from the property sector continues to linger. In addition consumption is tempered by more frequent lockdowns and momentum in exports is coming down. The government has stepped up policy easing and also provides support to the ailing property sector. Stability is a key priority this year due to the CPC Congress, see also Research China: Top 5 questions in 2022 – and financial implications, 13 January 2022.

China today

Growth: PMIs are bottoming out, despite the decline in January. Credit growth has recovered in recent months. Copper prices move sideways still in line with weak manufacturing momentum.

Inflation: PPI inflation fell to 10.3% in January from 13.5% in October. CPI inflation is still moderate at 2.1%, clearly below the 3% target.

Monetary policy: PBoC cut the RRR rate by 50bp in December and is signalling further easing. The Medium Lending Facility (MLF) rate was also cut by 10bp. We look for another cut in both RRR and the MLF rate in Q1. M1 growth remains weak.

CNY: The effective yuan is at the strongest levels in six years spurred by strong trade flows.

Stock markets: Stocks have stabilized and China USD high yield rate is down from the highs.

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Author

Allan von Mehren

Danske Bank A/S

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