China: A historic contraction in Q1 – Standard Chartered

China’s economy contracted for the first time in over four decades due to the coronavirus-inflicted slowdown, per Standard Chartered Bank. USD/CNY is trading at 7.072.

Key quotes

“GDP contracted 6.8% y/y in Q1 versus growth of 6% in Q4 (Figure 1). However, economic activity improved in March, with the decline in industrial production narrowing to 1.1% y/y from 13.5% y/y in January-February.”

“We now expect quarterly GDP growth of 3.0% y/y in Q2-2020 (4% prior), 6.0% in Q3 (5%), and 6.1% in Q4 (5.5%). Our growth forecast for 2020 remains unchanged at 2.5%.”

“We upgrade our 2021 GDP growth forecast to 7.5% from 5.8% prior, as we estimate growth of 18% y/y in Q1-2021 due to favourable base effects.”

“We maintain our expectation for another 80bps of cuts in the reserve requirement ratio (RRR) in Q2-Q3, a 25bps cut to the benchmark deposit rate in Q2, and another 10bps cut in the medium-term lending facility (MLF) rate in Q3.”