China’s second-quarter slowdown underway amid soft consumption
The desk views China's ongoing economic slowdown, particularly in domestic consumption and investment, as a pivotal shift signaling broader economic challenges. Per the full note from ing-think, retail sales growth slowed to a mere 0.2% year-on-year in April—the weakest performance since 2022—highlighting waning consumer confidence and spending. This trend has implications for the yuan as it strains local demand while external demand remains relatively robust. Our insights indicate that while the Chinese government currently lacks a sense of urgency regarding monetary easing, further declines in key economic indicators may trigger policy action later in the year.
What the desk is arguing
The desk frames this situation as a significant indicator of China's transitioning economic landscape. With soft consumption and investment data pointing to a decelerating growth trend in Q2, anticipations regarding monetary policy adjustments may soon shift.
Key statistics underline this trend: retail sales sharply fell to just 0.2% year-on-year in April, foreshadowing potential negative growth for May as sectors dependent on past consumption patterns show notable declines. Additionally, fixed-asset investment has slipped back into negative territory, suggesting broader uncertainties about the economic recovery and business investment climate.
Where it sits in our coverage
Our consensus target for USD/CNY stands at 1.075, with a range of 1.04 to 1.12. Key contributors to this perspective include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
This perspective sees a balanced risk profile in outlook, not diverging significantly from the broader consensus but leaning slightly towards a bearish stance on the yuan amidst pronounced domestic economic challenges.
How other firms see it
Alignments exist among firms recognizing the potential for continued yuan weakness due to both domestic pressures and external factors. Notably, jpmorgan and bofa highlight the deterioration in consumer sentiment. Conversely, firms like citi provide a more optimistic outlook, predicting a stabilizing trend in Chinese economic data later this year.
As the narrative surrounding China unfolds, ongoing monitoring of relevant indicators, such as USD/CNY fluctuations and broader global economic impacts, will be critical components of this analysis.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01China's retail sales growth moderated sharply to 0.2% YoY in April, indicating weakened consumer confidence.
- 02Fixed-asset investment has fallen back into negative growth, suggesting persistent economic uncertainty.
- 03The potential for further monetary easing exists but may only materialize if current trends worsen significantly.
- 04The overall outlook appears skewed toward downside risks in China's growth forecast.
Market implications
Traders should monitor the USD/CNY exchange rate closely as these economic indicators unfold, particularly looking for a breakdown below 1.075 which could escalate further bearish sentiment in the yuan. Any significant policy shifts or updates from the central bank could act as a catalyst for volatility.
Risks to this view
A reversal of the current bearish call could occur if key economic indicators show unexpected strength, particularly in consumer spending or if the Chinese government implements aggressive monetary easing that boosts sentiment. A strong rebound in investment in critical sectors could also mitigate downward pressure on the yuan.
Articles China’s second-quarter slowdown underway amid soft consumption 10:44 China Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Soft Chinese domestic activity data is likely an omen of decelerating growth in the second quarter, even as external demand remains strong. While there appears to be limited urgency for now, China still has room for monetary easing this year if it's needed Lynn Song Retail sales slowed to just 0.2% year-on-year in April, the softest month since 2022 Slowdown underway amid soft consumption and investment China’s April data came in well below market expectations. Retail sales slowed to just 0.2% year-on-year in April, the softest month since 2022.
Sales look likely to tip into negative territory in May. We are now seeing the negative side of front-loaded consumption from the trade-in programmes of previous years. Beneficiary categories are seeing big year-on-year drops.
Investment remains soft, with fixed‑asset investment slipping back into negative growth and new RMB lending continuing to contract – clear signs that firms are still holding back. Elevated uncertainty is likely weighing on investment, but the deeper issue is that, outside strategic sectors like tech and advanced manufacturing, investment appetite has been weak for a long stretch, even with low interest rates. Risks to our full-year growth forecast remain relatively balanced but are more tilted towards the downside than they were a month ago.
We've likely not yet seen the full impact of higher energy prices on the economy. Higher input prices will likely be passed on to consumers in the coming months. Tighter controls on capital outflows There have been reports of tighter controls out of China over the past month.
First, the China Securities Regulatory Commission (CSRC) announced a crackdown on offshore trading platforms popular among Chinese citizens for investing in overseas assets. Second, the State Council published new regulations on outbound investment at the start of June. There will be a greater focus on national security and tighter monitoring and oversight.
While outbound investment is still generally encouraged, sensitive sectors will likely be impacted, with controls on tech, data, and talent transfers. This could potentially add a new hurdle for Chinese outbound investment. Policymakers may have tightened controls due to concerns about bubble risks in global markets.
Tightening rules on outbound investment, meanwhile, may reflect a more uncertain global geopolitical backdrop. Fewer capital outflows could support the yuan, which has already shown solid appreciation momentum. More capital staying in domestic markets could support both domestic equity and bond markets, though the impact may be incremental.
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