Slowdown in Europe to have a limited effect on the Chinese economy

Brexit uncertainties are likely to have contagion effects on the rest of Europe. A very negative impact is likely on sentiment in the euro area and especially on business confidence following the British people’s decision to leave the EU.

The impact on China will mainly be felt through weaker exports to Europe to which around 15% of its’ foreign sales go. Investments could also see a moderate negative impact. However, the drag may be compensated by a deprecating CNY.

The weaker CNY is increasingly becoming a tailwind for the Chinese export sector following years of strong appreciation. The recovery in the construction sector is likely to continue and China has room to use fiscal policy further if needed to keep growth within its growth target of 6½-7% for this year.

"We expect People’s Bank of China (PBoC) to be on hold for the remainder of this year but to continue easing in 2017," said Danske Bank in a report.