Financial stress is on the rise turning focus yet again on whether China is heading for a deeper financial and economic crisis. While we do see a rising risk of this happening (25% probability), our baseline scenario remains that China has the tools to avert such an outcome and will use them to the extent needed. Yet, due to the recent weak data and rise in financial stress we have revised down our forecast to 4.8% growth this year and 4.2% in 2024. 

We have lifted our forecast for both USD/CNH and EUR/CNH taking the new weaker growth outlook as well as rising risks into account. We now project USD/CNH to hit 7.60 in 12M up from 7.40 previously.