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Key Points:
- Net exports contributed 31% of the 5.3%yoy China GDP growth in H1. However, with upcoming payback of previous exports front running and a 41% tariffs, we expect exports growth to turn negative near year-end, and drag on growth.
- Deflation got more entrenched and was broad-based in Q2 and June data, with nominal GDP growth being only at 3.94%yoy in Q2.
- We expect government to further implement announced policy plans, but largely, fiscal stimulus likely remains reactive. We expect China GDP growth to decelerate to 4.2-4.3% by Q4 this year.
- Growth deceleration and a narrower current account surplus likely pressure on CNY. With the help of weaker US dollar, we expect USD/CNY to reach 7.25 by Q3. Risks for USD/CNY exist for both directions.
