Deflationary pressure is building in China

Special focus: April inflations indicate a building of deflationary pressure. With a still expansionary economy and strong growth of total social financing, we don’t see persist negative inflations this year. However, the underperformance of the economy requires further policy incentives, we see room for policy rate cut in near term and fiscal policies/incentives are much desired as well.

FX views: Most emerging Asian currencies weakened last week, with KRW and MYR underperforming regional peers, followed by PHP and CNY. The exception was THB, outperforming regional peers amid optimism about a revival in tourist activity.

Week in review: Sluggish exports markets were seen in Philippines and Taiwan, with Philippines’ exports declining 9.1%yoy in March, and Taiwan’s exports falling 13.3%yoy in April. In China, exports growth came in more than expected to 8.5%yoy in April, though falling from March’s 14.8%yoy rise. Malaysia’s industrial production growth came in higher than expected to 3.1%yoy in March, though down from a revised growth of 3.5%yoy in February.

Central bank monitor: We expect BSP to keep its key rates on hold at 6.25%, after the recent downside surprise in inflation and dovish comments by the central bank governor.

Week ahead: The main focus of the week ahead will be on US retail sales and industrial production data, coupled with China’s monthly numbers for April. Meanwhile, Eurozone will also provide preliminary Q1 GDP numbers, which may give more clarity into future ECB moves. Across Asia, Thailand will release 1Q GDP data, which is expected to improve after a lacklustre 4Q2022.

---

THE SLOWDOWN IN CPI INFLATION THIS APRIL WAS DRIVEN BY CONSUMER GOODS INFLATION

Sources: CEIC, MUFG GMR