Bloomberg: Uncertainty in China’s economy will weaken the yuan

15 December 2022 233
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Source: Bloomberg

Author: Yujing Liu

Article: Original article

Publication date: Thursday, December 15, 2022

China’s economic activity weakened last month. Outbreaks of infection in the upcoming months are likely to cause a new wave of disturbance and force policymakers to increase economic stimulus.

The government’s sudden abandonment of its longstanding Covid Zero strategy has made the economic outlook extremely unclear, as plants prepare for disruptions and workforce shortages rise. High frequency data already demonstrate a further slowdown in economic activity in Beijing and other cities this month amid the spread of infection.

Lu Ting, chief China economist at Nomura Holdings Inc. stated that November’s data were far below consensus, showing an increasing deceleration, which will continue in December as well.

These data demonstrate that the GDP growth might be much weaker in the fourth quarter than economists expected, and it’s likely to be quite muted in the following year.

On Thursday, the People's Bank of China (PBOC) injected more cash in the banking system than predicted at its monthly liquidity operation in order to ease tensions in money markets during a bond selloff.

Zhou Hao, chief economist at Guotai Junan International Holdings said that low levels of business activity suggest further monetary easing to encourage the growth of activity. Therefore, he expects a 10-basis-point interest rate decrease on one-year policy loans in early 2023.

Forecast: the yuan’s weakening due to economic uncertainty and monetary policy easing.

This content is for informational purposes only and is not intended to be investing advice.

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