Upgrading our China 2023 GDP growth forecasts to 6.4% from prior 5.8%. The revision take place on the strong post-reopening recovery extends into the first quarter of the year. We are looking at a notable rebound in travel-related consumption and services; front-loaded macro policy suport; stronger-than-expected export sector performance, as well as earlier-than-expected bottoming out of housing activity.
The direction of travel in rate differentials looks favorable for China recently, continued outflows from China’s bond market underscore how the level of negative CN-US yield gap could handicap CNY- related inflows and currency strength. As reopening takes shape, we expect the service account deficit to widen with resumption of tourism outflows. Along with slowing external demand, we expect China’s current account surplus to narrow to 1.1% of GDP this year. Our strategist still sees risks biased towards higher spot in the near term, and forecasts the year-end USD/CNY target at 6.85. - J.P. Morgan
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