Ma Jun European recession China's exports will fac

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Ma Jun: Europe is declining, and China's exports will face a new impact

Ma Jun: Europe is declining, and China's exports will face a new impact

information on China's construction machinery

Guide: Europe is declining, and the euro is depreciating. Deutsche Bank recently lowered its forecast for the GDP growth of the euro zone's microcomputer electronic universal testing machine AD card, regardless of its external or internal installation process, to a line close to recession. Analysts predict that the GDP growth rate of the euro zone in 2008 was 1.2% (previously 1.7%), while in 2009 it was as low as 0.1%, almost zero (previously 0.8%). Analysts believe that

recession in Europe and depreciation of the euro

Deutsche Bank recently lowered its forecast for GDP growth in the euro zone to the near recession line. Analysts predict that the GDP growth rate of the euro zone in 2008 was 1.2% (previously 1.7%), while in 2009 it was as low as 0.1%, almost zero (previously 0.8%)

analysts believe that weak external demand, deleveraging is likely to hit investment, high commodity prices are hitting the private consumption sector, and the decline of the housing market may trigger a higher savings rate. These four factors make them look down on the economic trend. In the near future, economists at Deutsche Bank believe that the technical recession in the euro zone is likely to occur in the second and third quarters of this year. During this period, GDP growth is likely to shrink by 0.1% every quarter

at the same time, economists at Deutsche Bank estimate that the euro will weaken significantly against the US dollar in the second half of this year. By the end of 2009, the exchange rate of the euro against the US dollar will fall to 1.35, or even lower

they predict that by the end of this year, the exchange rate of the euro against the US dollar will drop from 1.59 at the peak to 1.45, and will drop to 1.35 in 2009. This means that from now to the end of 2009, the euro is likely to depreciate further by 10%. As we have been expecting, the RMB will appreciate by 5% against the US dollar by the end of 2009, which means that the RMB will rise against the euro in the same period

there are three main reasons to look down on the euro: first, due to the deterioration of the overall economy and the easing of inflationary pressure, the European Central Bank is likely to reduce the interest rate by 100 basis points next year. The most likely time to start the interest rate cut is the first quarter of 2009. On the other hand, in the near future, the Federal Reserve is likely to keep interest rates steady and eventually raise them. Therefore, the interest rate difference between the euro zone and the United States will be more favorable to the dollar

second, the relative performance of the real economy will bring benefits to the US dollar. This year, the US economy began to slow down earlier than Europe, but this process is likely to slow down in 2009 and recover earlier. The huge appreciation of the euro in recent years and the European Central Bank's unwillingness to adjust the distance between the two to 1.2-2mm as a good low interest rate will worsen the poor performance of the euro zone relative to the United States

third, from the perspective of long-term equilibrium, the euro is currently overvalued. Most academic studies show that the long-term estimate of the exchange rate of the euro against the US dollar is that the global total output in 2016 will be less than 20 tons, and the equilibrium level will be about 1.2, about 20% lower than the current exchange rate

impact on China

we believe that this European economic report will be a serious shock to China's foreign demand next year, just like the impact of the weak US dollar on China's economy this year. We estimate that if the GDP growth of the euro area drops by 1.1% and the depreciation of the euro against the RMB reaches 10%, China's export growth to the euro area (e.g. settled in US dollars) may fall from 26% this year to 0 next year

our analysis shows that China's exports to the euro area depend on two factors: the GDP growth of the euro area and the exchange rate of the euro against the RMB. For every 1% drop in GDP growth in the euro zone, China's export growth will decline by 7%. For every 10% rise of the RMB against the euro, China's export growth will slow down by 3%

based on historical links, the GDP growth of the euro zone predicted by Deutsche Bank and the exchange rate of the euro against the US dollar, we have predicted the growth of China's exports in the next 18 months. In particular, our assumptions include: GDP growth in the euro zone will increase from 1.2% this year to 0.1% this year; The dollar appreciated against the euro, from 1.59 in july2008 to 1.35 at the end of 2009; The RMB exchange rate against the US dollar will not change in the next 17 months. Under these assumptions, we find that China's exports to the eurozone will slow down significantly, from an estimated 16% this year to 6% next year

we estimate that if settled in US dollars, China's exports will decrease. Because China's foreign trade (including trade with the euro zone) has always been settled mainly in US dollars, the official Chinese trade data, most global investors look at the profit and profit growth, and are subject to US dollars. Therefore, we have made an important adjustment to take into account the pricing power of Chinese exporters when the RMB appreciates against the euro. We believe that for every 10% appreciation of the RMB against the euro, Chinese exporters will be able to raise the selling price by 5%. In view of our expectation that the exchange rate of the euro against the US dollar will be 10% lower than the average price this year, the nominal growth rate of China's exports to the euro area is likely to decrease from 26% this year to 1% in 2009

from the perspective of industry, our analysis shows that the economy of the euro zone has slowed down significantly. The most obvious victims should be China based exports of electronic products and clothing, which account for 2/3 of China's exports to the euro zone. We find that for every 1% decrease in GDP growth in the euro area, China's exports of electronic products to the euro area will slow down by 15% (settled at the constant price of the euro), and its exports of clothing will decrease by 5%. We believe that many companies in these industries will not only suffer losses due to the sharp decline in export volume, but also suffer losses due to international currency settlement

stimulus fiscal policy

our general economic and market view is that we are optimistic about the GDP and income growth in the second half of 2008, but 2009 may be a difficult year

we believe that the sluggish European economy will become the biggest external negative impact on China's economy in 2009, just as the US economic slowdown affected China's economy in 2008. This will be the second biggest blow to China's export sector this year

China's exports to the European continent and the United Kingdom accounted for 20% of China's total exports. China's exports to the European continent decreased by 10% year-on-year, which will directly reduce China's total exports by 2% year-on-year. Moreover, the weakness of the European economy will obviously affect the demand of other OECD (Organization for economic cooperation and development) countries. As a result, China's total exports may eventually decline by 4 percentage points year-on-year. This means that the deceleration of China's total exports will be reduced from an estimated 11% this year (20% lower than the previous year) to 7% next year

considering the direct and indirect impacts, we estimate that the decline in exports is expected to reduce China's economy by 0.7% year-on-year in 2009. Without an appropriate package of policies, weak external demand (especially in the European continent) will pose greater downside risks to China's GDP outlook in the coming year

however, we believe that the government will increasingly focus on stimulating domestic demand through policies to resist the expected further weakening of external demand and the further decline of internal demand in sectors such as real estate. Recently (August 29), Vice Premier Li Keqiang of the State Council proposed that "stimulating domestic demand is the basis of our economic development strategy", which is a clear signal of the high-level policy direction. In particular, we believe that following the recent relaxation of monetary policy, the government will begin to relax fiscal policy in 2009 (some of the programs in a series of policies may be implemented in mid-2009) to stimulate domestic demand. This series of fiscal policies may eventually increase GDP by 1%

the three most likely changes at the beginning of next year are: the implementation of foreign-related taxation nationwide, which will reduce the purchase cost of machinery; Reduce personal income tax; We will substantially increase government rolling investment, mainly in agriculture, railways, new energy and post earthquake construction

the implementation of consumption value-added tax nationwide. Value added tax is the most important tax in China, accounting for 40% of the total revenue of the Chinese government. At present, China already has a production-based value-added tax, which is levied according to the purchase amount of fixed assets, but not according to the sales amount of products. From 2009, if the value-added tax changes to consumption, we expect the government to refund the value-added tax on fixed assets (mainly equipment) nationwide. We expect that this change will reduce the procurement cost of fixed capital by nearly 7% on average, which will stimulate the demand for investment goods. This change will save 100billion yuan of cost for enterprises every year, equivalent to 0.3% of GDP

the two water testing plans for the reform of value-added tax have been implemented in all provinces of North China and 26 inland cities. We believe that the government will implement this new value-added tax policy to the following departments: equipment, oil and gas, metal, shipbuilding, food processing, coal mining and high technology

as for the reduction of individual income tax, some influential policy proponents have pointed out that the threshold of individual income tax should be raised from the current 2000 yuan per month to a higher level (such as 3500 yuan). This will be another significant tax cut, and consumers will be able to pay 50billion less taxes. The main beneficiaries will be middle-income people, whose current monthly income is mostly between 2000 yuan and 3500 yuan. For some people who earn 3500 yuan a month, the reform will increase their after tax income by 3.6%. For urban residents, The tax reform measures will promote its 30px "Fiscal investment will be more used in agriculture, railways, the environment, energy conservation and post earthquake reconstruction. The reason for increasing fiscal investment in infrastructure is similar to the situation faced from 1998 to 2002, when China's economy also suffered a sharp reduction in exports.

this will stimulate domestic demand and alleviate the structural bottleneck of economic growth. However, the specific sectors targeted by fiscal investment are different: during the year, Most of the government's investment is in road construction. The upcoming fiscal policy aims at the next "new bottleneck", including agriculture, railways, environmental protection, energy conservation and post earthquake reconstruction in Sichuan (the central government has allocated 70billion yuan for post earthquake reconstruction this year. We expect that the fiscal budget in 2009 will invest more, which may reach 100billion yuan, accounting for 0.3% of the total GDP)

in our view, machinery, consumption, agriculture, railways, environment and new energy will be the beneficiaries of fiscal stimulus. The sectors of construction machinery and services (due to value-added tax reform and post earthquake reconstruction), consumers (income tax reduction), railways (government expenditure), agriculture (government expenditure) and clean energy (government encouragement and investment) will be the beneficiaries of the next policies. These sectors are largely unaffected by external demand, and they are driven by domestic demand and government policies. And government policies will further promote consumer demand


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