Chinese Yuan Mixed As Economy Contracts 6.8% in Q1, Retail Sales Crash

The Chinese yuan is mixed against its currency competitors to finish the trading week as investors weigh China’s near-term economic recovery. With the latest bearish numbers suggesting Beijing’s COVID-19 devastation, analysts are hoping that the worst is over and that the nation’s reboot will lead to better results.

According to the National Bureau of Statistics (NBS), the gross domestic product (GDP) plummeted 6.8% in the first quarter, worse than the market forecast of -6.5%. In the fourth quarter, China’s economic activity expanded by 6%. Automobile production plummeted 44.6%, the industrial sector fell 9.6%, and the services industry declined by 5.2%.
Officials noted that the short-term fallout would not impact its long-term growth potential since its economic fundamentals remain the same.
Industrial output slipped at an annualized rate of 1.1% in March, up from the 13.5% drop in the previous month. The figure comes in way better than expected as experts anticipated a 7.3% slide. Industrial capacity utilization clocked in at 67.3% in the January-to-March period, down from 77.5% in the October-to-December period.
Retail sales took another beating last month, plunging at an annualized rate of 15.8%, worse than the median estimate of -10%. It is an improvement from February’s -20.5%.
Before the release of the economic data, Beijing performed additional monetary policy maneuvering. On Thursday, the People’s Bank of China (PBoC) slashed the reserve requirement ratio (RRR) for the third time this year by 50 basis points, which will pump approximately $28 billion into the market. Observers are already projecting the next RRR cut will take place in the middle of next month, injecting an additional $28 billion into the economy.
The PBoC also reduced the one-year medium-term lending facility interest rate by 20 basis points to 2.95%. This move puts roughly $14 billion into the banking system.
Earlier this week, trade data was published and import and export numbers were a lot better than economists had predicted. Next on the data front, year-to-date industrial profits and multiple manufacturing and non-manufacturing purchasing managers’ index (PMI) readings.
Although China’s coronavirus cases have stabilized, the nation continues to report new confirmed cases and deaths each day. China has nearly 83,000 confirmed cases with 4,632 deaths – just under 78,000 people with the coronavirus have recovered.
The USD/CNY currency pair dipped 0.09% to 7.0735, from an opening of 7.0798, at 12:40 GMT on Friday. The EUR/CNY rose 0.08% to 7.6850, from an opening of 7.6876.

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