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Chinese economic outlook seems fairly bright in 2018, housing market likely to ease

The Chinese economic outlook appears to be fairly bright in 2018, noted Nordea Bank in a research report. However, risks are increasing, in particular with deleveraging. An escalation of trade tensions with the U.S. should not be discounted either. The Chinese yuan is expected to continue to be driven by the USD.

Momentum in the Chinese economy continues to be high. Although the easing housing market is expected to weigh on the industrial activity and growth in 2018, the deceleration is expected to be modest and gradual. The housing market is likely to ease in 2018 but it is highly unlikely to collapse, stated Nordea Bank. A sharp reduction of vacancy has alleviated the risk from the housing bubble.

Deleveraging is likely to top the reform agenda in 2018. However, any progress will take time. It is important to find the balance between too slow and too quick deleveraging. Either way, the bubble might burst.

Moreover, the trade outlook appears to be strong again in 2018. However, it is fragile to an escalation of trade tensions with the U.S. Tariffs on steel and aluminum might not hurt China but if Trump is serious about closing U.S. trade deficit, there would be no winner, stated Nordea Bank. Xi Jinping’s power consolidation implies that China’s global status would strengthen further through additional free trade and investment agreements.

“The CNY will likely continue being driven by the USD. We expect a short-term weakening of the CNY versus the USD to be followed by medium-term strength”, added Nordea Bank.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral at 8.21557, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -72.4362. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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