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Chinese Yuan Flat As IMF Forecasts Economic Growth in 2020, 2021

June 26, 2020 at 16:59 by Andrew Moran

A mix of 1-yuan and 5-yuan notesThe Chinese yuan is flat against most of its currency rivals at the end of the trading week, despite a new report that suggests China’s economy will buck the global trend and grow this year. China recently kickstarted its economic rebound, but early data indicators highlight that Beijing’s efforts are only producing a slow recovery.

In 2020, the global economy is projected to contract 4.9% due to the coronavirus pandemic that has destroyed demand and hurt production. But China could grow its economy this year, according to the International Monetary Fund (IMF)’s June World Economic Outlook Update.

Researchers say in its June study that the world’s second-largest economy could grow 1% in 2020, lower than its outlook in April. The gross domestic product (GDP) would then advance by 8.2% in 2021. These estimates are a lot better than the IMF’s predictions for some of the world’s biggest economies. The US is anticipated to plunge 8% and the European Union is expected to crater 10.2%.

IMF officials are attributing to government stimulus, rising consumer spending, and firming private sector investment.

The downturn could be less severe than forecast if economic normalization proceeds faster than currently expected in areas that have reopened – for example in China, where the recovery in investment and services through May was stronger than anticipated.

Overall, the IMF did recommend caution due to uncertainty over the COVID-19 pandemic, the length of lockdowns and if restrictions could return, adjustments to global supply chains, and unemployment rates.

Do the data support these projections? In the last month, exports fell 3.3%, retail sales tumbled 2.8%, industrial production fell short of the consensus, and the manufacturing and non-manufacturing purchasing managers’ index (PMI) readings were sluggish.

While domestic demand is growing, foreign demand is serving as a roadblock for smaller companies. Even regional trade has been disappointing. A Standard Chartered survey of more than 500 small firms found that new export orders are still contracting, though the index has improved from 47.4 in April to 49.8.

The USD/CNY currency pair rose 0.01% to 7.0784, from an opening of 7.0783, at 16:50 GMT on Friday. The EUR/CNY jumped 0.07% to 7.9466, from an opening of 7.9414.

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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