Latest tariffs will drag China's growth below 6pc, UBS estimates

Business | 6 Aug 2019 4:53 pm

China's economic growth in the next 12 months could fall by 0.25–0.5 percentage points as a result of the 10 percent additional tariffs to be imposed from September 1, on US$300 billion worth of exports to the United States, and this would push the growth rate below 6 percent into 2020, Swiss investment bank UBS says.

The direct impact of the tariffs, would also reduce the US gross domestic product by 0.15 perent, UBS estimates, The Guardian reports.

Mark Haefele, chief investment officer at UBS Global Wealth Management, says:

China’s response to recent trade escalations has been relatively measured and we expect a similar reaction this time, with retaliation involving a mix of more tariffs and non-tariff measures. Potential non-tariff measures include a managed depreciation of the yuan to mitigate the trade impact from higher tariffs, penalising select US companies operating in China, and imposing export restrictions on rare earth metals''

Hafele advised investors not to overreact.

“There is still time to find a compromise, trade talks between the US and China scheduled for September have not been called off, and investors should also consider potential offsetting factors such as rate cuts by central banks and stimulus in China. Our base case assumes a long, drawn-out negotiation process, during which tensions can occasionally flare up.

“An environment of a) rising trade tensions and b) potential stimulus, including falling interest rates, is tricky for investors to navigate. While we ultimately believe that US–China tradetensions will be resolved through negotiations, we think equities may struggle to move markedly higher until there is greater certainty.''

 

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