Category: Economics

Why are China’s FX reserves falling?

  • Down to $3.5tn from $4tn in June 2014.
  • Fall due to China supporting renminbi (i.e. buying renminbi and selling US$ when downward pressure on renminbi).
  • Downward pressure on renminbi due to capital outflows as China economy slows and foreign investors leave.

Is the Chinese renminbi undervalued?

  • IMF now says no (after years of saying yes) because renminbi has gained 25% against the US$ over the last decade.
  • US considers it "significantly undervalued" (saying China keeps it this way for trade advantage).
  • China is the world's largest trading nation, and many attribute this to an artificially undervalued currency.

Macrosnap Brazil economy?

  • Big depreciation of currency.
  • Deep recession continues.
  • Multi-year government stimulus program (aimed at prolonging a consumption & credit-led boom) has failed, and all that's left is a huge budget deficit.

Saudi Arabia as an oil consumer?

  • Produces 10m barrels per day, but consumes 25% of them.
  • Believed that at current consumption rate, given reserves and estimated extraction potential, set to become a net oil importer by 2025/30.
  • Hence government is making announcements about investing in solar and wind energy + the need to phase out fossil fuel use by 2050.

Japan monetary policy?

  • Problem for Japan is that economy is looking better but still no signs of much-needed in inflation (big fear is for deflation coming back to spook the economy).
  • Central bank (BoJ) recently saying economic outlook ok and signs some signs of inflation, so therefore monetary easing on hold.
  • IMF warning recovery is weak hence 3 arrows of Abenomics should continue (and therefore monetary easing should continue).

US interest rates?

  • Consensus seemed to be rate rise for June.
  • But now emerges growth was weaker 1Q15 than expected.
  • Reduces likelihood of June rate rise.

China balance of payments deficit?

  • Record balance of payments deficit recorded 1Q15.
  • China exports more than it imports, so usually has a large trade surplus.
  • But funds being drawn out of the country exceed this.
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