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Chinese Yuan Mixed on Q2 Growth Prospects, Expected Stimulus

February 26, 2020 at 15:52 by Andrew Moran

A fan of 50-yuan billsThe Chinese yuan is mixed against multiple currency competitors midweek as global financial markets contend with the coronavirus that appears to be worsening worldwide. Despite the potentially damaging economic fallout, some Wall Street titans anticipate Beijing will recover in the second quarter, which might happen as the country employs various fiscal and monetary stimulus measures.

Speaking in an interview with CNBC on Tuesday, JPMorgan Chase’s global economist, Joseph Lupton, expects China’s economy to bounce back from Covid-19 during the April-to-June period. He forecasts that Q2 growth will hit 15% on an annualized basis. Before that happens, though, the financial institution expects a 4% contraction in the first quarter.

Right now, it is all about determining where the bottom is and if “we are starting to march our way upward.” Until then, fiscal and monetary stimulus will continue to aid the country’s recovery.

In a recent meeting headed by President XI Jinping, the nation’s top leaders signaled that they will ramp up fiscal and monetary stimulus this year to limit the economic effects of the outbreak. This comes as the People’s Bank of China (PBoC) has unleashed more than a dozen measures, while the federal government has initiated across-the-board tax cuts and stimulus spending.

If you get a rebound that’s happening, even if you’re still down 30%, if you were down 50%, that’s a 20 percentage point move that actually starts to impact growth not just in the second quarter but even in the late first quarter.

While the situation in China is looking to stabilize, the coronavirus looks to be spreading around the world. Greece reported its first case, France confirmed its second death, and Canada has announced another infected patient. In the US, the World Health Organization (WHO) and the Centers for Disease Control and Prevention (CDC) say that it is only a matter of time before the coronavirus creates troublesome conditions in the world’s largest economy.

The death toll is approaching 3,000 and the total number of confirmed cases has topped 81,000.

The USD/CNY currency pair rose 0.05% to 7.0409, from an opening of 7.0374, at 14:44 GMT on Wednesday. The EUR/CNY tumbled 0.13% to 7.6503, from an opening of 7.6599.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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