MarketSaga

Saga of Financial Markets

Fri12152017

Last updateSat, 29 Jul 2017 12am

Back You are here: Home Market Market Update Insight The Impact of cheap US dollar on US and China

The Impact of cheap US dollar on US and China

Until its rebound this summer, dollar had lost about 25% of its value on a trade-weighted basis since its peak in 2002. The weaken dollar has made US product more competitive and for the first time in years, America's export are growing faster than China's. In the 12 months to June, America's exports grew by 23% and China's 17%.

The increase in exports has made the the trade deficit, excluding oil, to fall by almost 25% since 2006. Accordingly, if the recent drop in oil prices is sustained, the total trade deficit will shrink more rapidly in the second half of this year than it did in the first half. For the time being, America's current account deficit has fallen to around 5% of GDP from a peak of 6.2% in the 3rd quarter of 2006. It is expected to drop to 3.5% of GDP in 2009, according to Merrill Lynch.

Impact_of_cheap_dollar_on_US_and_China

Turning to China, with reference to the left-hand chart, China's export volumes rose by 11% in the year to the second quarter, while America's climbed by 12%. Stephen Green, an economist at Standard Chartered, expect China's real export growth to fall to zero by the end of this year and to turn negative next year.

Meanwhile, China's consumer spending is now growing faster than exports as illustrate in the right-hand chart. Retail sales jumped by 23% in nominal terms in the year to July, and 16% in real terms. Dragonomics, a Beijing-based research firm, estimates that consumption now contributed two-thirds of China's GDP growth in the first half of 2008, up from 44% in 2007.

Reference: The Economist, 2008-08-14, "The global economy rebalancing act"