China: An unexciting recovery – Standard Chartered

Standard Chartered monthly proprietary SME survey reveals a gradual recovery in April, but with concerns about the near-term outlook. USD/CNY trades at 7.0724.

Key quotes

“The headline SMEI rose to 50.9 in April from 49.6 in March. The latest ‘current performance’ reading rose 3.8ppt to 50.0, but ‘expectations’ eased 1.9ppt to 52.1, suggesting that despite an improvement in real activity, uncertainty about the recovery has increased on growing headwinds from a likely global recession in Q2.”

“Production activity has accelerated in April as more SMEs resume work. Capacity utilisation is up to 62% from 52% in March, but the demand recovery is subdued, with current orders at c.58% of normal levels.” 

“We expect more targeted measures to be rolled out, including another 80bps of RRR cuts 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.”