General

Looking ahead to the second half of the global foreign trade economy and entering the third quarter, considering that the excess savings of the residential sector in Europe and America are still around 1 trillion yuan, this will continue to support the stable growth of private consumption in Europe and America in the short term. "Cheng Shi, Chief Economist of ICBC International, analyzed that in terms of emerging markets, despite the continuous decline in commodity prices in the second half of 2022, the economic growth rate of most emerging market countries significantly slowed down in the first half of the year, However, it is expected that some emerging market countries (such as Brazil, India, and major Southeast Asian countries) will benefit from stable private consumption in Europe and America, heavy global trade chains, and China's economic recovery, and their economies will still rapidly recover in the third quarter. However, for countries (such as Argentina and Türkiye) that have been experiencing hyperinflation for a long time and have always faced heavy internal and external debt pressure, it is still difficult to solve the possibility of currency crisis even when inflation reaches a moderate growth range.

Entering the second quarter of 2023, based on the current leading indicators of economic recession in Europe and America, most indicators continue to remain stable. Cheng Shi's analysis shows that in the United States, although the GDP growth rate in the second quarter has declined due to fluctuations in inventory investment, the actual foreign trade economic growth rate is still higher than the potential economic growth rate estimated by the Federal Reserve. Among them, private consumption data, which contributed more than 70% of GDP growth rate, remains generally stable. Before the epidemic, the actual consumption growth rate in the United States was less than 2%, but after the epidemic, the actual consumption growth rate in the United States has climbed to around 3.1%. Leading indicators such as actual consumption expenditure, retail sales month on month, new home sales, car sales, and personal consumption expenditure also indicate that overall consumption in the United States has remained stable since the second quarter of this year.

In terms of the euro area, with the gradual slowdown of the Russia-Ukraine conflict, the economies of the countries in the euro area have entered the recovery channel. Although the growth rate of retail sales is still weak, the disposable income of residents has continued to grow, and Consumer confidence has been rapidly restored simultaneously. In addition, the recovery of China's foreign trade economy also boosted the performance of Balance of trade in the euro area.

What are the reasons for the sustained resilience of European and American foreign trade economies in the short term, despite the overall high inflation level, significant increase in interest rates, and low long-term potential growth rates?

Firstly, the main reason is that the excess savings deposited in the residential sector are still abundant. According to Cheng Shi's analysis, since the outbreak of the pandemic in the United States in 2020, the US Treasury has directly transferred payments of up to 2.3 trillion US dollars to US resident accounts through the Federal Reserve. This portion of transfer payments has accumulated in resident accounts, forming excess savings and ultimately supporting individual consumer spending, driving the recovery of the US economy but also exacerbating inflation. According to Cheng Shi's estimation, the excess savings of the US residential sector at the end of Q1 2023 were still $1 trillion (4% of GDP), which continued to support consumer spending in the residential sector. Meanwhile, due to fiscal policy support, the monthly excess savings consumption of the US household sector has narrowed compared to the previous period, resulting in a decrease in excess savings retention consumption. Similarly, data from the European Central Bank shows that the excess savings of the residential sector in the eurozone remained at nearly 900 billion euros by the end of March 2023.

Secondly, the significant downward trend in overall inflation has boosted the purchasing power of the residential sector in Europe and America. Entering the second quarter of 2023, due to a significant decline in energy and food inflation, European and American countries have marginally improved the purchasing power of their household sectors in durable goods consumption, thereby ensuring the sustainability of purchasing power in service consumption.

Finally, the issue of imbalanced labor markets in European and American countries still exists, with wage stickiness supporting the upward trend of hourly wages in the service and manufacturing industries. The continuous shortage of labor in the manufacturing and service industries supports the rapid growth of hourly wages in the manufacturing and core service sectors, and the increase in disposable income of residents further alleviates the constraint of high inflation and high interest rates on purchasing power.

In terms of emerging markets, as commodity prices enter 2023 and begin to significantly decline, GDP growth in countries highly dependent on energy and food exports such as Brazil, Argentina, Saudi Arabia, and South Africa significantly slowed down in the first quarter of 2023. According to Cheng Shi's analysis, the major economies of India and Southeast Asia are still undergoing rapid economic recovery due to the stable domestic demand in Europe and America, the reshaping of the global trade chain, and the opening up of China's epidemic prevention policies. On the Russian side, under the influence of collective Western sanctions, Russia's foreign trade economy continues to maintain a negative range, but the recovery of domestic demand in China and India will drive the speed of Russia's economic recession to narrow. It is expected that among the major emerging market countries, India, Brazil, Russia, and South Africa will have year-on-year real GDP growth rates of 6.1%, 0.8%, 0.1%, and 0.2%, respectively. (Translated from: China Trade News)