However, key challenges remain and any recovery could be fragile. The risks include further interest rate hikes from the US Federal Reserve leading to a stronger dollar, which is typically negative for emerging markets — it increases their USD funding costs, spurs capital outflows and limits the scope for interest rate decreases in China.
We are seeing more green shoots appearing in China as Covid restrictions are easing with the reopening of Shanghai and other cities. Manufacturers have ramped up production while delivery times were shortened, supporting a re-acceleration in China’s exports.
As supply-chain constraints are resolved, this should help to temper global inflation. Other supportive policy actions in recent months include easing restrictions on Internet companies and plans to increase infrastructure spending. We expect this pro-growth stance to continue, albeit at a measured pace.
