A sharp fall in the yuan, and a trade war with the US: China’s nightmare economic double whammy, according to Deloitte
Officials say the double-barrelled, worst-case scenario is highly unlikely, however, as overall economic global growth will be better than expected and lift trade between China, India, and the US
A sharp fall in the value of the yuan to 7.5 per US dollar and a potential trade war between the US and China have been highlighted as the major challenges faced by Asia and the mainland this year, according to Deloitte.
But the accounting and consulting giant also expects that double-barrelled, worst-case scenario highly unlikely, and that overall economic growth globally will be better than expected as many indicators point to a lift in world trade this year between China, India, and the US.
“The largest risk this year is a sharp depreciation of the yuan which could affect the region’s recovery. The current investment market has already priced in the expectation of the yuan falling to 7.2 or 7.3 yuan per US dollar and as such, the yuan would have to fall to 7.5 yuan per US dollar to shock the market,” Sitao Xu, chief economist and partner, Deloitte China, told a briefing to introduce the first edition of “Voice of Asia”, a series of reports from the firm about opportunities and challenges in Asia.
The yuan lost 7 per cent of its value last year which is the biggest annual fall since records started in 1994. It currently trades at around 6.9 yuan to the greenback.
The continuing devaluation of the Chinese yuan is necessary, though how the Chinese government managers it will be key. If it’s too aggressive, other Asian currencies may also fall. This could led Trump following through on his protectionist rhetoric which could start a trade war
“The continuing devaluation of the Chinese yuan is necessary, though how the Chinese government manages it will be key,” Xu said.