The analysis and outlook of the current macroeconomic situation and macroeconomic policies

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The analysis and outlook of the current macroeconomic situation and macroeconomic policies Chief Economist of the Economic Forecast Department of the State

1 The analysis and outlook of the current macroeconomic situation and macroeconomic policies Chief Economist of the Economic Forecast Department of the State Information Centre Wang Yuanhong Address: No.58, Sanlihe Road,Xicheng District, Beijing Post code: Tel: Fax:

2 Key points I. Analysis of the current domestic and international economic situation II. China s economic development environment in 2014 III. Forecast on China s economic growth in 2014 IV. Macro-control policy in 2014

3 I. Analysis of the current domestic and international economic situation 1. Economic of the main countries continues to improve. 2. Growth rate of domestic macroeconomic going down slightly. 3. Preliminary forecast on the major economic indicators in second-quarter.

4 1.Major economies of the world continues to improve (1)Economy of U.S. continues to recover steadily (2)The incentives of the European economy growth is strengthened. (3)The economy of Japan remains low consolidation. (4)The economy of newly emerged markets has not recovered much.

5 1.The economic analysis of the main countries worldwide The extreme weather disturbances to the economy has vanished basically. The current data indicts strong rebound of the economy in the second-quarter. The American consumer expense in March shows the largest growth margin within four and a half years. The retail data shows a month to month growth of 1.1% which creates a new high record since September of The factories activities have been accelerated in April, and industrial output data in March has exceeded expectation and the industrial production in February has also revised upward which creates the largest growth margin since May of The housing starts in the real estate industry has hit the highest level within three months. The number of newly added job positions have been increased steadily, and the PPI has created the largest growth margin record within nine months. The GDP at constant price in the first-quarter shows year-on-year increase of 2.3% and month to month increase of 0.1%. Although the consumer expense is rising, the inflations remains moderate. The interest rate is not expected to be adjusted before sometime of The Federal Open Market Committee has decided to conduct further modest reduction of the scale of asset purchases. Since May, the committee will purchase $20 billion mortgage backed securities and $25 billion American long-term treasury bonds every month. And the committee shall keep complying the rolling investment principles of investing and buying in again when the bonds held reaching maturity. The committee might further reduce the purchasing scale of the assets in the meeting in the future, if the economic data in the future shows that the labor market improvement matches the expectation of the Federal Reserve and the inflation is heading to the long-term target.

6 (1)Economy of U.S. continues to recover steadily U.S. GDP growth rate(%)

7 (1) Economy of U.S. continues to recover steadily U.S. GDP growth rate(%)

8 (1)Economy of U.S. continues to recover steadily U.S. industrial production index

9 (1)Economy of U.S. continues to recover steadily U.S. inflation trend(%)

10 (1)Economy of U.S. continues to recover steadily U.S. unemployment rate(%)

11 (1)Economy of U.S. continues to recover steadily U.S. housing starts and sales(thousand units)

12 (1)Economy of U.S. continues to recover steadily U.S. auto sales (million units )

13 (2)The incentives of the European economy growth is strengthened. The overall European economy is improving. Although the GDP of forth-quarter in last year is not shown as expected, the comprehensive PMI in April of the euro zone has hit the new since May of 2011 which is higher than the Entrepreneurs confidence threshold in ten consecutive months. The unemployment rate has been maintained steady since October of 2013, the trade surplus growth has been significantly improved compared to last year. The lower inflation rate has stimulated the consuming to a certain extent and the retail sales has achieved improvement and the industrial output has been increased slightly. The deflation risk is still severe. The annual and monthly rate of PPI in February had decreased with the decline exceeding the expectation. The monthly rate of final value of euro zone CPI in March has rose by 0.9% and the annual rate has rose by 0.5%; the change of euro CPI has primarily focused on three factors, housing price, energy price and the price of daily necessities. First, although the long-term rate of the euro zone has continue to decrease, the influences to the real estate industry is not obvious and the effect of the housing price index to stimulate the economy is not obvious too; Second, the energy price going low also can not provide incentives the economy and the inflation. Besides, the price of the tradable goods of the daily necessities price has been affected greatly by the lower global price, and in the non-tradable aspect, the entertainment service shows lower performance. Although the European Central Bank President Mario Draghi forecasted that the euro zone would not fall into deflation, and it will continue to face the low inflation problems, and there is a long way to launch the QE for now. While according to the latest investigation of the economists, 2/3 interviewees have forecasted that the European central bank will ease the monetary policy as early as in June. And some economists think that the euro-dollar exchange rate exceeding 1.4 ( or a further rise in the real effective exchange rate ) might be the trigger point. Negative deposit rate might be an option, if the situation goes worse, the chance of launching QE might be increased.

14 (2)The incentives of the European economy growth is strengthened. The year-on-year trend of GDP in the current quarter of 27 countries of EU and the euro zone.

15 2.The incentives of the European economy growth is strengthened. Consumer confidence index trend

16 2.The incentives of the European economy growth is strengthened. Industrial production index trend

17 (2)The incentives of the European economy growth is strengthened. Inflation Rate

18 2.The incentives of the European economy growth is strengthened. Unemployment Rate 27 countries of EU: Unemployment rate: seasonal adjustment Euro zone: unemployment rate: seasonal adjustment Data source: Wind information

19 3,Economy in Japan remains low consolidation Trade deficit in Japan in March exceeded the expectation again reaching 1,450 billion yen, and it reached 1,710 billion yen after the seasonal adjustment (with the market expectation up to 1430 billion yen). Judging from the structure, the situation in March is almost the same in February which shows weak export and strong import. The year-on-year increase rate of export in March is only 1.8% which showed the smallest increase within 12 months; while the import was up to 18.1%. In the first quarter, the year-on-year increase rate of current seasonal GDP is 3.0%,while the month to month rate after seasonal adjustment is 1.45%. Due to the massive purchasing from the consumer before rising of the consumption tax on 1st of April, the family expense of Japan in March had hit the newest record within 39 years according to the yearly increase, which lays the foundation for the going down of the consuming after, thus it might destroy the recovery of the economy in the following several months. The core CPI of Japan in April jumped dramatically, which creates the largest increase in record since April of If the influence of the rising of the consumption tax was deducted, the growth speed of the commodity price will match with the one in March. Although the recent data shows some worse news, such as the sales of new cars had showed the first decline in 8 months and the manufacturing activities in April had presented the first shrinkage over a year. While the rate of new house under construction has increased in four years consecutively. And the data such as the unemployment rate in March hit the lowest level since July of 2007, the bankruptcy rate of enterprises declined by 12.37% still provided confidence to the market. While from the fundamental views, the overall economy of Japan maintains recovery, while it is still not enough. The central bank of Japan adjust the economic forecast dramatically while the monetary policy stays the same. It is predicted that the central bank of Japan will not carrying out new move until July or even later, because at that time the influence of the rise of the consumption tax on the domestic economy and price will be more clear.

20 3,The economy of Japan remains low consolidation. GDP year-on-year rate of the current quarter in Japan

21 3,The economy of Japan remains low consolidation. Japan s Monthly CPI (year-on-year rate,%)

22 3,The economy of Japan remains low consolidation. Japan s unemployment rate (year-on-year rate,%)

23 4,The economy of newly emerged markets has not recovered much. The overall newly emerged economy has not recovered much. According to the IMF forecast, due to the influence of the geopolitical crisis in Ukraine, the growth rate of the economy in Russia will be 0.2% in this year which is lower than the 1.3% predicted before. IMF indicates that the fears caused by the issues about sanctions of the western countries has damaged the investment activities which urges the capitals to flow out of Russian market and promote the rate of ruble going down to the lowest level in the history. And now the economic outlook also bears the risk of going down. The Russian Central Bank announced on 25 th of April that the benchmark interest rate will be adjusted from 7% to 7.5%. In the earlier time, the standard&poor company once evaluated the sovereign debt of Russia as BBB class, which is quite close to the Junk class. In March, the manufacture PMI index of Brazil has increased by 0.2% to 50.6% compared to last month; while the manufacturing PMI index of South Africa and India had declined respectively from last month s 52.4% and 52.5% to 51.3% and 51.3%. However, despite India's macroeconomic and political uncertainty, the consumer confidence index in this quarter has still rose to 121, which reaches the highest point since the fourth quarter of The PMI of India in April issued by HSBC is 51.3 which is the same of the last month indicating that the manufacturing trend in India maintains steady largely. In February of 2014, the composite leading economic indicators of Russia, India and Brazil was 99.74,97.71 and respectively, which is lower than the long-term trend according to the long-term trend value of 100. The exports also showed differentiation with the export share of Russia and India declining and Brazil as well as South Africa enjoying the year-on-year increase. The lacking of long term increasing factors of the newly emerged market is still gathering, and the government authority has no time to push the structural reforms due to the intensive election. How to get rid of the bottom level soon still remains to be the urgent problems to solve of the countries with the newly emerged market.

24 4,The economy of newly emerged markets has not recovered much. Russian GDP index (year-on-year rate,%)

25 4,The economy of newly emerged markets has not recovered much. Russian inflation rate (year-on-year rate, %)

26 4,The economy of newly emerged markets has not recovered much. Russian unemployment rate (year-on-year rate, %)

27 4.The economy of newly emerged markets has not recovered much. Year-on-year growth rate of Brazil GDP(%)

28 4,The economy of newly emerged markets has not recovered much. Quarterly growth rate of India GDP

29 4.The economy of newly emerged markets has not recovered much. India inflation

30 2.Growth rate of domestic macroeconomic decreases slightly (1)The industrial growth is lower than expected. (2)The demands demonstrate significant decrease (3)The inflation is obviously lower than expected.

31 2. Growth rate of domestic macroeconomic slightly drops

32 (1)The industrial growth is lower than expected. The year-on-year growth speed of the above-scale industrial added value

33 (1)The industrial growth is lower than expected.

34 (2)The demands demonstrate significant drop The year-on-year growth speed of the fixed asset investment (farmers excluded)

35 (2)The demands demonstrate significant contraction

36 (2)The demands demonstrate significant contraction

37 (2)The demands demonstrate significant contraction

38 (2)The demands demonstrate significant contraction The monthly year-on-year growth rate of the total retail sales of consumer goods

39 (2)The demands demonstrate significant contraction

40 (3)The inflation is obviously lower than expected. CPI in April Changes in ex-factory price of industrial producers Industrial producer ex-work price Yr-on-yr Month-on-month year-on-year rate Yr-on-yr Month-on-month

41 (4)Monetary and credit growth rate has declined

42 (5)The volatility of financial revenue and expenditure is higher

43 (5)The volatility of financial revenue and expenditure is larger

44 3. The preliminary forecast on the main macroeconomic index Right axis Upper control limit Lower control limit

45 3, Preliminary forecast on main macroeconomic index in second-quarter Index Actual value in Full year absolute value 100 million Yuan The actual amount of first quarter Forecasted value in the second quarter growth absolute value growth rate absolute growth rate value rate % 100 million Yuan % 100 million % Yuan GDP Primary industry Secondary industry Tertiary-industry Above-scale industrial added value Light industry Heavy industry Urban fixed asset investment Real Estate Investment Retail sales of social consumer goods Exports (U.S. $ 100million) Imports (U.S. $ 100million ) Consumer Price Index Industrial producer prices

46 II. China s economic development environment in ,The overall international economic environment is stable 2,The challenge of domestic difficulties is still severe 3,We still possess the conditions of stable growth

47 1. The overall international economic environment is stable (1)The overall global economy is expected to continue to improve (2)The competition of international industry market is intense increasingly. (3)The global political environment might be more complex.

48 (1)The overall global economy is expected to continue to improve USA, Japan, Europe and other major developed economies are expected to maintain the recovery trend. The newly emerged economies bear more pressure due to the growth rate of the economy going down The adjustment risk for the policies of the main economies can not be neglected.

49 (2)The competition of international industry market is intense increasingly. With the breakthrough in the new energy, the new-generation information and internet technology, high-end manufacturing industry, biomedical fields as well as the reform and upgrading of the traditional industries, the global economy is expected to appear new incentives. With the revitalizing manufacturing industry of the developed countries, the trend of international industry division and transferring might be changed. The late-coming countries will be more involved in the middle-low market, and the international competition will be more intense.

50 (3)The global political environment might be more complex. The dominance status of the developed countries in the global governance has not changed. With the recovery of the economy, the containment, differentiation and the combat from the developed countries to the newly emerging market countries might be uprising, and the demands for cooperation will go down relatively. The emerging market counties will confront more difficulties and challenge in involving making the international rules and standards, bilateral and multilateral trade and investment cooperation as well as maintaining the geopolitical aspects.

51 2,The challenge of domestic difficulties is still severe (1)The economy recovers in steady pace, while the foundation is not solid. (2)The task of promoting upgrading and transformation is arduous. (3)The fiscal and financial risks are accumulating increasingly. (4)The cost for operating the enterprises keeps rising

52 (1)The economy recovers in steady pace, while the foundation is not solid. The incentives from the recovery of the developed economies to our exports are limited; the growth rate of newly emerged economies accounting for 40% of the exports going down will affect the exports. The trade protection will be increased, the scales will be enlarged and the degree will be deepened. PPI has been declined for over 20 months consecutively and the major business profit rate of the industrial enterprises has been declined continuously, and the investment capability and the expected profit of the enterprises is not strong enough; the infrastructure funding is inadequate and the growth rate of the investment might be slow down; the reserves for major projects are reducing and the persistent investment capability is inadequate; the growth rate of the real estate investment will be slow down. The facts that the residential income s growth rate is slowing down, the housing price going up too fast is squeezing other consumption, the new growth point for consumption needs to be cultivated, and the consumption environment such as food security needs to be improved will influence the consumption.

53 (2)The task of promoting upgrading and transformation is arduous. The problem of over-capacity is still under development The supporting role of the science and technology is not sufficient. The situation of energy reservation is severe.

54 (3)The fiscal and financial risks are accumulating The local debt risk has not solved efficiently. The shadow banking risks are exposing gradually. The triangular debts " caused by the enterprises mutual insurance and Interconnection have not been curbed. The systemic risks have been exacerbated by the differentiation of the real estate market.

55 (4)The cost for operating the enterprises keeps rising The actual financing cost of the enterprises has been improved dramatically. The annual average wage of employed personnel in urban units has been increased 14.4%. The annual average revenue of farmers has been increased 17.4%. Energy conservation, low-cost rising, water price increasing and pollution control

56 3.We still possess the conditions of stable growth The reforms will further activate the inner power and vitality of the market. There is still much room for development of Industrialization, informatization, urbanization and agricultural modernization. The industries transfer enjoys tremendous potential within the regions. The ability for facing the difficulties and self-development of the enterprises has been enhanced. The national saving rate is getting higher and the macroeconomic policies bears larger space than before. The development concept of the government are developing, the controlling experience are accumulating and the governing ability is getting enhanced gradually.

57 III. China s economic growth forecast in , The growth rate of the economy will maintain moderate-high. 2, The growth rate of the investment will become moderate when reaching the highest point. 3, The growth of consumption will maintain stable. 4, The growth rate of the exports and imports will maintain basically the same. 5,The price levels will be recovered slightly.

58 IV macro-control policy trend 1, Continuing to carry out the proactive fiscal policy 2, Keeping implementing prudent monetary policy. 3, Deepening economic system reforms comprehensively. 4, Striving to maintain the steady growth of the economy.

59 IV macro-control policy trend 5, Promoting the industries transformation and upgrading proactively. 6, Accelerating the construction of ecological civilization 7, Promoting the new urbanization prudently. 8, Protecting and improving people s livelihood effectively.

60 Thank You!

Leumi. Global Economics Monthly Review. Arie Tal, Research Economist. May 8, The Finance Division, Economics Department. leumiusa.

Leumi. Global Economics Monthly Review. Arie Tal, Research Economist. May 8, The Finance Division, Economics Department. leumiusa. Global Economics Monthly Review May 8, 2018 Arie Tal, Research Economist The Finance Division, Economics Department Leumi leumiusa.com Please see important disclaimer on the last page of this report Key