China: More signs of slowdown

Outlook and current trends

Outlook. After a strong recovery in 2020, growth has slowed in early 2021. We look for GDPgrowth to moderate further during the year on policy tightening and lower growth in global goods demand. We look for a bounce in March PMI following strong goods consumption in US in Q1. Slowing credit growth, a shift from goods to service driven growth on export markets and a fading ‘catch-up’ effect mean fewer tailwinds to growth. We believe the majority of the CNY appreciation vs. USD is behind us but look for further strengthening vs. EUR

China today

Growth.After a strong growth rebound during 2020 PMI’spoint to a peak in the cycle supported by slowing creditgrowth. Copperprices re-accelerated in early 2021 signalling still strong demand, but supply constraints and low inventories also play a role.

Inflation. CPI is still in def lationterritory asconsumer prices fell 0.2% y/y in February. PPI inf lation has moved higher but monetary tightening should cool commodity price inf lation.

Monetary policy.Rateshave been on hold for the past few quarters but de facto policy has tightened. However, financial tightening has slowed lately according to our FCI indicator.

CNY.The yuanappreciation vs. the USD has come to a halt as the relative economic strength is shifting back towards the US.

Stock markets. Stockshave corrected lower as retail investors have been.

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