China

China: Economic stimulus measures showing first effects

China’s economy seems to have fallen back into step. Economic growth stabilized at 6.4% at the beginning of the year. This comes as a positive surprise. Above all, the very dynamic acceleration of industrial production in March by three percentage points to 8.5% signals that the economic stimulus measures initiated by the Chinese government in recent weeks are having an effect. State investment activity and investment in infrastructure have also picked up. Clearly problematic is that we are once again seeing the „old“ stimulus packages with the typical longer-term risks to financial stability and potential growth. The OECD has only recently warned Beijing of this. On the other hand, the boost to private consumption thanks to the VAT reduction from 16% to 13% is to be welcomed. It should also prove conducive to spurring demand for automobiles which has fallen sharply. However, there are still no visible signs of this…

Massive surge in share prices in the first months of 2019

In the first few months of this year, share prices literally skyrocketed on financial markets. But as headwinds pick up, this trend is unlikely to continue unimpeded. For almost all asset classes, 2018 was not a good year. But the complete reverse is now the case in the first months of 2019, with virtually all asset classes staging a positive performance since the beginning of the year. The good performance of equity markets in particular highlights the extent to which the price losses in 2018 were overstated. In fact the growth expectations have actually deteriorated over the course of 2019 so far, and the political risks have not improved much either. On the other hand, uplift has come once again from the central banks: the US Federal Reserve ended its cycle of interest rate hikes, and the ECB dashed any expectations of interest rates rising in the near future. It…

China lowers its growth target – no big deal

China’s government has lowered its growth target for this year. That is not necessarily bad news, and the step likewise did not come as a complete surprise. In recent weeks, countless provinces had already reeled their targets back in. The economic indicators since the beginning of the year have predominantly been weak. It is no secret that the prospects for China’s economy are at present anything but rosy. The trade dispute with the United States is leaving an ever more obvious dent in China’s economic cycle, and not just the US customs tariffs imposed on Chinese goods delivered, but also the counter-tariffs Beijing has imposed on imports from the USA. It was only logical that in his opening speech at the National People’s Congress that has just begun, Premier Li Keqiang cited the trans-Pacific trade conflict as the reason why the targets were being lowered. However, the step taken is…

China, the USA and the “Potemkin Villages” of FX stability

The USA and China are on the verge of making a breakthrough to a new trade treaty. The subject of “foreign exchange” is said to play a key role and there are apparently “exactly defined structural agreements” in place – we wait with bated breath to see what they look like. The speculation to date is that China has promised to take the lid off its interventions in the foreign exchange market. Meaning the emphasis is not on forgoing interventions and also not on ex-ante information or even US permission, but simply on making the interventions more transparent after the event. That said, we should not forget that China has long since ceased to keep the Yuan on the desired track only by resorting to the entrance-level model of forex-policy, namely simply cash market interventions. The structure today is far more complex and includes a mixture of outright, forward and…

China: Trade dispute starts to squeeze the economy

For a long time it looked as though the trans-Pacific trade dispute would not really affect the Chinese economy. We now know that economic growth in the final quarter of last year amounted to 6.4%, the lowest level since the low point reached in the financial crisis ten years ago, falling short of the growth target that the Chinese government had set itself. This at least is what the official data from the country’s statistics bureau say. Doubts remain as to whether the decline may of late actually have been greater, but Beijing would probably not have permitted publication of an even weaker growth rate. Precisely in economically weaker phases such as the current one, missing targets and sharper volatility in economic growth in China are delicate issues, as the government likes to use the growth figures to demonstrate stability. For 2018 as a whole, economic growth came to 6.6%…

Weaker global economy – forecasts downgraded

Virtually no risk factor from the old year has lost any of its gravity with the start of the new year. Compounding this is the escalation in the domestic political situation in the USA in the form of the shutdown which has resulted in the week-long closure of some federal authorities. Provisional data publications also show that industry in the euro zone continued burdening the economy in the fourth quarter. We have therefore revised down our growth forecast for Germany, France and the euro zone as a whole for this year. For the US economy, the outlook for the year 2020 has also deteriorated. Throughout Europe, problems in the automotive industry have left their mark on the industrial sector. With the pace slowing down once again in the final quarter of 2018, we have lowered our growth forecast for the euro zone for this year to 1.2 percent. For quite…

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