July’s data shows China’s recovery is continuing but at a slower pace compared to its V-shaped rebound in Q2’20.
Industrial production rose by 0.98%MoM, keeping its YoY growth at 4.8% rather than exceeding 5.0%YoY as the consensus had expected. Retail sales also disappointed, rising by 0.85%MoM with YoY growth still in negative territory at -1.1%YoY. But fixed asset investment met expectations, increasing by 4.85%MoM and -1.6%YoY.
China’s rebound continues to be led by state activities in industrial production, infrastructure and property investment while consumers stay cautious. The recovery is uneven but China remains on track to be the only major economy to achieve positive growth in 2020 after GDP rose from -6.8%YoY in Q1’20 to 3.2%YoY in Q2’20.
First, July’s monetary data shows credit growth continues to grow at a faster pace of 13%YoY.
Second, the People’s Bank of China still has room to cut interest rates should growth falter this year.
Thus, we see the CNY rising to 6.75 against the USD over the next 12 months, supported by stronger growth and higher bond yields in China.
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