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Global economic situation forecast and RMB exchange rate analysis
!!Xiao Lisheng, Doctor, Institute of World Economics and Politics (IWEP),Chinese Academy of Social Sciences (CASS),

2019-06-14 10:04:04

The report is divided into three parts. 

Firstly, he analyzed the macro economy operation. 
Economic growth rate will continue to decline. In Q1 2019, China's GDP growth rate reached 6.4%. China¨s economic growth rate may keep within 6.2-6.3% in 2019, 6.2% in 2020 and 6% in 2021. Population structure, China-US trade war and deleveraging are the main risks restraining the growth of economy. 
In Q1 2019, consumption contributed 4.17% to GDP, investment contributed 0.77% and net export contributed 1.46%. GDP growth rate reached 6.4%. 
^Stabilization of leverage ̄ of China has been near the average of the developed countries, having achieved initial results, but Q1 data has the risk of adding leverage. The nominal GDP growth rate was 7.84, which was lower than the social growth rate of 10.69. The credit expansion rate exceeded the nominal GDP growth rate, indicating the risk of leverage. This shows that China's development momentum is still in consumption. In 2018, food consumption expenditure accounted for 27.7%, which was equivalent to Japan in the early 1970s. In the mid-1980s, with the increase in domestic consumption, the proportion of food consumption expenditures gradually declined, and residents' spending on other services such as services and medical care increased. In addition, under the dual pressures of oil prices and pig prices, inflationary pressures have risen, but this does not change the pattern of the domestic economic downturn. 

Secondly, he analyzed the real estate investment and import and export pattern. 
Real estate market diverged. The proportion of sales and investment in the real estate market in third-and-fourth-tier got higher and higher. Housing starts in the first-and-second-tier cities stabilized and picked up, and real estate sales in third-and-fourth-tier cities has already weakened. Real estate investment in third-and-fourth-tier cities was under great downward pressure, and it was likely to be still in a downward range. Dr. Xiao believes that in the second half of 2019, real estate investment contributed to the economic may reduce. 

In the first quarter of 2019, China¨s export rose by 1.4% year on year, and import decreased by 4.8% compared with the same period of last year. The trade surplus of goods was $76.3 billion, with a year-on-year increase of $31.4 billion. The global PMI is in the downtrend, while the US is still at a high level. China¨s PMI rebounds slightly, but the economic situation is still weak. Based on export structure, mechanical and electrical products witnessed the fastest decline, reflecting falling world prosperity and lower y-o-y growth of export value.  

Thirdly, Dr. Xiao made analysis on trade war and RMB exchange rate tendency. 
Dr. Xiao believes that the Sino-US trade war situation is very serious and exacerbates the uncertainty of the global economy. However, given China's contribution to global economic growth, it is difficult for the United States to exclude China from the global economy. Dr. Xiao also described in detail the origins of trade conflicts and the variety involved. Drawing on the fierce trade friction between the United States and Japan in the 1970s and 1980s, there was a huge gap in labor costs between the US and Japan in the industrial sector. By the early 1990s, the production costs of the US and Japanese manufacturing industries finally converge. Similarly, China has pursued the goal of localization rate, reduced its dependence on imported technology and equipment, and achieved catch-up with the United States on the export of high-complexity products. 

In May 2019, the RMB exchange rate depreciated by 2.5%, the US dollar index rose by 0.2%, and the RMB exchange rate was again decoupled from the US dollar index. At the same time, the emerging market currency index depreciated by 2%, and the RMB exchange rate became one of the weakest emerging market currencies in the world. In terms of capital flows, starting in April, cross-border capital flows from emerging market countries to developed economies, and mainly flows to the developed country bond market, suggesting that the global economy lacks investment opportunities. China's monetary policy remains stable, and the Sino-US spread does not support the depreciation of the RMB exchange rate. Dr. Xiao believes that the RMB exchange rate will not break 7. It is predicted that the short-term exchange rate of the Chinese economy will not bottom out, the US dollar index will not peak, and the long-term exchange rate will have some depreciation pressure. 

Dr. Xiao concluded that the main contradiction this year is the inconsistency between the economic cycle and corporate earnings expectations; short-term consumption has rebounded slightly, and the trend of consumption upgrading is not expected to be interrupted; real estate investment will be divided, real estate sales may continue to decline, and investment may further reduce the policy space; global demand is weak, export pressure is gradually emerging; the RMB exchange rate is likely to increase in the second quarter, and the risk of exchange reform should be guarded. 
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