The new head of the International Monetary Fund, Kristalina Georgieva, has told China’s Caixin Global news service, that she expects the Part 1 agreement to boost China’s GDP growth to 6% in 2020. That would be an increase from the IMF’s previous projection of 5.8% made in October.
Georgieva cited the announced pause to the trade war, the roll back of some tariffs, an increase in Chinese purchase of U.S. farm products, and China’s commitment to structural reforms in its economy as reasons for the improved forecast.
I’d note that the agreement still hasn’t actually been signs and that there are already signs that China will game the deal by, for example, diverting imports from the United States from Hong Kong, where they don’t get included in trade figures, to mainland ports, where they will vie included as additional Chinese purchases from the United States.
But I’d also note that this interview is yet another indication that many economists and investors are more than willing to take the deal at face value–for the near term future anyway–and to use it to justify a shift in sentiment toward emerging market assets for the year ahead.
That shift in sentiment may be nothing more than an effort to find a new place to stash money with U.S. stocks are record highs (again) but the shift is still important in the short-term (say one to three months) even if you think the reasoning behind it is wrong (as I do.)
