Chinese Yuan Weakens As State Stimulus, Bearish Forecasts Revealed

The  Chinese yuan is weakening against several major currency rivals midweek. As  the  federal government unveiled its multi-layered stimulus to  boost the  economy, new forecasts show that economists believe growth could plunge to  2% in  the  next decade, but not before growing 6% this year.

China unveiled a  major tax cut package on  Tuesday, opening the  annual session of  the  nation’s parliament. Warning that the  country faces “a  tough struggle,” Prime Minister Li Keqiang outlined a  $300 billion proposal to  slash taxes and  reduce company fees. According to  the  No. 2 leader, some of  these measures include lowering the  value-added tax (VAT) for  transportation and  construction sectors from 10% to  9% and  decreasing the  VAT for  manufacturers from 16% to  13%.
In  addition, the  federal government intends to  increase spending and  boost foreign firms’ access to  its economy. This will include a  7.5% increase to  its military budget of  1.2 trillion yuan, though this is down from last year’s 8.1% jump.
But will this be enough? It depends on  whom you ask.
Research firm Capital Economics told CNBC that it expects gross domestic product (GDP) growth to  crater to  2% in  the  next decade, citing a  declining workforce, changing demographics, soaring debt levels, and  falling productivity. But AXA Investments told Bloomberg that it thinks the  Chinese economy will mirror 2018 and  grow 2019 this year.
Meanwhile, Morgan Stanley wrote in  a  research note that the  Chinese yuan will likely receive greater recognition as  a  global reserve currency. The  Wall Street titan forecasts that the  currency’s share of  global reserves will advance to  5% within the  next 10 years. With financial reforms on  the  table, enhancing investor confidence, central banks and  sovereign wealth funds will acquire more yuan-denominated assets.
The  USD/CNY currency pair edged up 0.06% to  6.7115, from an  opening of  6.7074, at  16:18 GMT on  Wednesday. The  EUR/CNY advanced 0.11% to  7.5931, from an  opening of  7.5844.

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