China: Better global economy is positive for trade - ING

In view of Iris Pang, Economist at ING, improvements in the economies of Europe and US are pushing exports higher which is positive for China’s trade prospective.

Key Quotes

“We are in line with the consensus in forecasting June export growth of 9% YoY and import growth of 14.5% (prior 8.7% and 14.8%, respectively). Firmer demand in the US and Europe supports export growth while strong imports, part of which would transform into exports with about a three-month lag, bode well for export growth in coming months. Accelerating GDP growth in both the US and Europe is behind our forecast that the current strength in trade will persist into 2H17.”

“We expect the trade surplus to grow slightly to US$42.3bn in June from US$40.8bn in May. But what about China moving its trade surplus closer to balance, as some question? To achieve that, would require domestic spenders to consume a large amount of imported goods. The trend here is certainly upwards, but wage levels needs to grow substantially to change most people’s spending patterns. That would take at least a few years’ time before surplus became a realistic possibility.”

“What could make our 2H forecast for stronger trade go wrong? A stronger CNY could soften trade growth. Managing the CNY is a delicate balancing act for the government. The central bank won’t let the CNY depreciate in the current environment due to worries about capital outflows. However, it can’t let the CNY get too strong either, as this would weaken the export trade, which does contribute to foreign reserves.”