Commerzbank’s Volkmar Baur highlights that China’s economy started 2026 slightly better than expected, driven by a sharp rise in exports and a swelling current account surplus. State-linked banks are recycling these surpluses into foreign assets, while higher commodity prices are expected to end deflation as producer prices and the GDP deflator turn positive over coming quarters.

Exports, current account surplus and deflation outlook

"The Chinese economy got off to a slightly better start to the new year than expected, once again buoyed by a sharp rise in exports."

"The already very high current account surplus is therefore likely to rise further this quarter."

"Data from the financial sector show that it is primarily Chinese banks that are recycling the surpluses and investing them in foreign assets."

"This suggests once again that the banking sector is actively intervening in the exchange rate to weaken the CNY by purchasing assets denominated in foreign currencies."

"However, trends in commodity prices strongly suggest that producer prices are likely to turn positive year-over-year as early as March. The GDP deflator should therefore follow suit by the second quarter at the latest."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)