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    China: More tailwind for exports – Danske Bank

    Chief Analyst, Allan von Mehren at Danske Bank, suggests that Chinese trade data released today generally supported a picture of a moderate recovery. Key QuotesWhile the quality of the data is not great, it currently fits well with the information from other key figures such as PMI, industrial production and construction data, which all point to higher activity over the past two to three months.Having been in negative territory for most of 2015, export growth has shown gains over the past couple of months. Exports are benefiting from rising support from the weakening of the trade-weighted CNY as the FX impulse has moved from a sharp headwind to the highest tailwind in seven years. The CNY basket has declined 7% over the past year.While it is tempting to see this as a deliberate move by China to support exports, there are no signs of this. If anything, over the past year China has intervened to dampen the weakening. Also, while China is no longer intervening to support the currency, there are no signs of the opposite either as FX reserves have been broadly stable recently. However, China has allowed market forces to weaken the currency around 4% away from what it perceives to be the equilibrium level. This is in line with its new policy of managing against a basket but also allowing market forces to play a rising role. We look for more CNY weakness ahead.In May, import growth (CNY) jumped to 5.1% y/y from -5.7% y/y in April. While it seems like a big jump, it is likely to be due partly to a rise in import prices on higher commodity prices. The import deflator for May has not yet been released but we suspect the rise in import growth is much smaller in real terms. Taking a step back though, there are signs of a gradual recovery in real import growth.We continue to look for a moderate improvement in Chinese growth over the coming quarters. It is set to be driven by stronger construction growth and a lift to export growth from the CNY tailwind and an increase in US growth from the weak spot in Q1.”

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