China’s export growth has slowed and trade surplus has declined in recent
months. The same trend is expected to continue in 2012. What does this mean
for China’s macro policy, exchange rate, FX reserves and domestic liquidity
conditions?
First, we expect China’s export growth to drop to zero in 2012, and expect that
to have a sizeable negative impact on the economy – we forecast the drop in
real net exports (current account surplus) to subtract 1.4 percent from GDP
growth. Indirectly, weaker exports will also affect corporate investment and
consumer spending. As a response, we expect the government to ease fiscal
and monetary policy, with the extra fiscal deficit and new bank credit
amounting to about 2-3% of GDP. All these are incorporated in our current
2012 growth forecast.