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Alicia García-Herrero

A. G.-H.


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Articles by A. G.-H.

Covid-19 and emerging economies: What to expect in the short- and medium-term

June 3, 2020

This article was originally published in the Observer Research Foundation. As Brazil, Russia, India and Mexico record the fast spread of the Covid-19 contagion, a third wave of the pandemic is reaching the emerging world. As a result, business sentiment has decreased in March and April in the region. What’s more, as emerging economies gradually […]

As Brazil, Russia, India and Mexico record the fast spread of the Covid-19 contagion, a third wave of the pandemic is reaching the emerging world. As a result, business sentiment has decreased in March and April in the region. What’s more, as emerging economies gradually moved towards tighter mobility restrictions, the lack of mobility is set to weigh on the economic outlook. In fact, the International Monetary Fund (IMF) is expecting the

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Reading tea leaves from China’s two sessions: Large monetary and fiscal stimulus and still no growth guarantee

May 25, 2020

The announcement of a large stimulus without a growth target indicates that China’s recovery is far from complete.
It was hard to think of a more important gathering than last week’s ‘Two Sessions’, during which Chinese political leaders were to guide all of us as to the way ahead for the Chinese economy. While this yearly event is always important, this year’s was crucial. 2020 marks the end of two key cycles of economic planning: the current Five-Year Plan, and the end of the 10-year period during which the country aimed at doubling its income, which is the operational target to measure President’s Xi Great Rejuvenation plan. Expectations were running all the higher that the Chinese economy is reeling from unprecedented levels of uncertainties due to coronavirus epidemic – including

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El Covid-19 en las economías emergentes

May 13, 2020

La tercera oleada de la pandemia llega al mundo emergente. ¿Qué esperar a corto y medio plazo?Al ‘shock’ económico inmediato podría seguirle una remodelación en la cadena de valor global.

El Covid-19 hizo estragos en la economía china durante el primer trimestre de 2020 y hace lo propio ahora  mismo en Europa y Estados Unidos. Con la primera oleada de la epidemia, mientras se expandía el brote de coronavirus, el PIB de China experimentó una contracción del 6,8%. La enfermedad provocó la desaparición de la demanda interna, golpeando en especial las ventas minoristas locales, y un rápido deterioro del mercado de trabajo, con una subida de la tasa de desempleo y el hundimiento de los ingresos disponibles. Al reanudarse la producción en China, una de las consecuencias del hundimiento de la

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Depression, and not stagflation, could haunt China in 2020

April 17, 2020

This opinion piece was originally published in Asia Times and Medium China’s GDP in the first quarter of the year has surprised nobody but the devil is in the details. Local retail sales continued to fall in March (-16%), marginally better than during the peak of the Covid19 outbreak in January and February. The continuation […]

China’s GDP in the first quarter of the year has surprised nobody but the devil is in the details. Local retail sales continued to fall in March (-16%), marginally better than during the peak of the Covid19 outbreak in January and February. The continuation of the slump in domestic demand clearly stands out when compared with the return to production in March.  In fact, industrial production hardly declined in March (1.1%) after a collapse in January-February.

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From G7 to G20: passing three hot potatoes

March 26, 2020

Yesterday’s G7 video-conference ended in silence. It wasn’t even possible for the group to issue a joint statement after the US administration’s push to enter into a blame game over the Covid-19 label. However, let’s not give up. There is one more chance today for global coordination: the G20 emergency video-conference hosted by Saudi Arabia. This is the opportunity for the G20 to stand out and overshadow the G7 and for the world to end up with some international policy coordination. The key issues continue to be dollar liquidity, excessive dollar appreciation and plummeting oil prices.
What a difficult world to live in, especially for those who believe in international cooperation. In the light of a pandemic, each nation affected takes its own measures without bothering to look at its

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Only the coronavirus can convince Trump of the virtues of international cooperation

March 13, 2020

Given how badly the coronavirus outbreak in the US is affecting Trump’s chances to be reelected, let’s hope he comes to its senses and see the advantages of leading a coordinated effort to save the global economy. For once since he came to power, he may see the positive angle of global cooperation and multilateralism, of course, for his own sake.
Since the coronavirus outbreak has become a pandemic, global risk aversion has spiked driving the king safe asset, US Treasuries to their lowest yield on record while equity markets have tanked globally and high yield credit spreads have widened, reminding us all of the global financial crisis only twelve  years ago. The difference is that this time around the shock has not been created by financial imbalances in a particular country, the US, but

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Uncoordinated policies behind market collapse

March 10, 2020

After more than a month of horrible news on the Covid-19 coronavirus outbreak, first in China and then globally, the markets have finally abdicated.For the whole of February, markets had managed to endure the first ups and downs, especially outside China. To begin with, the area of ​​contagion was expected to remain limited to China or, at best, to the rest of Asia. In addition, once it was understood that the impact on the Chinese economy was going to be very negative, the markets came up with the hope of a great stimulus plan to be carried out by Beijing, which filled them with bliss, to the point of recovering all of the losses that had accumulated since the epidemic began in Wuhan.For too long, investors continued to turn a deaf ear to the announcements by a large number of companies

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Downsides to Hong Kong’s untargeted cash handout

March 4, 2020

The stimulus is regressive in nature, as the bulk of expenditure is a one-off cash disbursement per adultAfter enjoying 15 years of fiscal surplus, Hong Kong is now running a deficit due to plummeting growth. The economy contracted by 1.2% in 2019, and this year will most likely be the same, if not worse.Last week’s budget shows that Hong Kong’s sweet dilemma has come to an end. It is a test for whether Hong Kong really has adopted a “new fiscal philosophy,” as mentioned by Chief Executive Carrie Lam back in 2018, on bolder spending, if necessary.The answer seems to be yes. The headline relief measures amount to HK$120 billion (US$15.4 billion, 4.2% of gross domestic product), with HK$71 billion (2.5% of GDP) handed out as cash. As such, the fiscal deficit may reach 4.8% of GDP on the

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Companies must move supply chains further from China

February 28, 2020

Virus shows Southeast Asian factories too dependent on imported production inputsMore abrupt and unexpected than the U.S.-China trade war, the Wuhan coronavirus outbreak has become a wake-up call for international companies about the risks of excessive dependence on China.It is already proving a far bigger shock than the 2003 severe acute respiratory syndrome, or SARS, outbreak. This is because China’s economy is now more than eight times larger than it was then and its importance to the global economy has grown even faster.The country has become a large and vital market for international companies ranging from Apple to Adidas. But with millions of Chinese people confined to their homes and most malls and stores shut, domestic demand has collapsed for the majority of goods and

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Why the US Trade Agreement will slow China’s economy

February 20, 2020

The response of the global financial markets to the trade agreement reached between the United States and China has been very positive, probably excessively so given the relatively limited size of the agreement reached.The positive thing about the agreement is that it allows a truce — at least partially — in the strategic competition between China and the United States. This truce comes at a key moment for both President Donald Trump and President Xi Jinping for different reasons. China cutting tariffs in half on U.S. goods will serve President Trump as he aims to show that he has managed to take China on before the U.S. presidential election.China Gains Sentiment but Little ElsePresident Xi desperately needed to improve investors’ confidence in China’s economy to pave the way to generate

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Epidemic tests China’s supply chain dominance

February 17, 2020

Much has been written on the Wuhan coronavirus that causes the respiratory disease Covid-19, but very little is known yet about its impact on the global economy and, in particular, the global value chain. Still, one thing is clear: The shock is bigger than that caused by severe acute respiratory syndrome (SARS), for the simple reason that China is much more important for the global economy than it was then.Beyond China’s much larger economic size, it is important to note that China is now much more integrated in the global value chain. By moving up the ladder, China has become a much more important player in exporting intermediate goods than before, which means that any disruption in its production capacity could affect the rest of the world more severely than in the past.It is worth

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Epidemic tests China’s supply chain dominance

February 17, 2020

Much has been written on the Wuhan coronavirus that causes the respiratory disease Covid-19, but very little is known yet about its impact on the global economy and, in particular, the global value chain. Still, one thing is clear: The shock is bigger than that caused by severe acute respiratory syndrome (SARS), for the simple reason that China is much more important for the global economy than it was then.Beyond China’s much larger economic size, it is important to note that China is now much more integrated in the global value chain. By moving up the ladder, China has become a much more important player in exporting intermediate goods than before, which means that any disruption in its production capacity could affect the rest of the world more severely than in the past.It is worth

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China’s Coronavirus will not lead to recession but to stimulus and even more debt

February 6, 2020

The coronavirus outbreak will not lead to recession but the costs of ensuring growth targets will be highThe outbreak of coronavirus has struck yet another blow to the Chinese economy after the improvement in business confidence since the Phase One trade deal was announced in mid-December. How severe the coronavirus may be for the Chinese economy will not only depend on the extent and depth of the virus outbreak but also on the government response. The People’s Bank of China immediate and bold reaction to calm markets with the equivalent of USD 170 billion in liquidity injection says it all about the pressure for Chinese policymakers to mitigate the impact of the coronavirus outbreak on financial markets, on sentiment and on the Chinese economy, more generally.Many take the example of the

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From globalization to deglobalization: Zooming into trade

February 3, 2020

External PublicationThis article shows some evidence of the decrease in merchandise, capital and, to a lesser extent people to people flows. By: Alicia García-Herrero Date: February 3, 2020 Topic: Global Economics & Governance After decades of increasing globalization both in trade, capital flows but even people to people movements, it seems the trend has turned towards deglobalization. This article shows some evidence of the decrease in merchandise, capital and, to a lesser extent people to people flows. In addition, zooming into trade, the article offers an account of the importance of the strategic competition between the US and China to foster the deglobalization trend further. This is true for trade but even beyond in the tech and finance space. Finally, the demise of the

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The US-China trade agreement will not put an end to geopolitical risks

January 31, 2020

The agreement between the US and China should not be read so positively in Europe, especially in GermanyThe reading of the global financial markets on the agreement reached between the United States and China has been positive, probably excessively, given the relatively limited size of the agreement reached. The best thing about the agreement is that it allows a truce – at least partial – in the strategic competition between China and the United States. This truce comes at a key moment for both presidents, Trump and Xi, for different reasons. Trump needs a victory while calming the financial markets before the US presidential election. Xi needs to improve investors’ perception of China’s economic situation to achieve growth of at least 5.7% in 2020 and, thanks to that, achieve its

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Japanese economy: Déjà vu – but worse

December 12, 2019

It is difficult to imagine how Japan can undertake any major economic reform if it has taken five years to increase the consumption tax and has needed two strong fiscal packages.Since Prime Minister Shinzo Abe came to power in 2012, Japan’s economic recovery has been hinging on his three key economic policies (the so-called three “arrows” of Abenomics) bearing fruit. The first, and best known, arrow is monetary policy, which has been used massively through quantitative easing as well as the introduction of negative rates, but to no avail. In fact, the Bank of Japan’s ultimate objective – pushing up inflation toward a 2% target – is far from being reached.On the second “arrow,” namely fiscal consolidation for a country with one of the highest levels of public debt in the world, the

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Watch out for China’s currency in case of no-deal scenario

December 11, 2019

The U.S. and China’s negotiations on a phase-one deal seem to have stalled again. The market was already aware of the limited nature of the likely deal, but was still hoping for it. Against this backdrop, the investors have reacted negatively to the increased likelihood of not reaching a deal on December 15. If this is the case, the U.S. will apply additional tariffs on Chinese imports. The obvious question to address, thus, is, what can happen to China under such a scenario?We first need to realize that the so-called interim deal would still have left all the tough aspects, i.e. intellectual property protection, industrial policy subsidies, the role of SOEs, market access, etc., to a later stage. Given that the market has already lowered its expectations, a no-deal scenario might not be

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Hong Kong’s Economy is in Danger of Further Contraction

November 21, 2019

Approaching the end of a volatile year, Hong Kong continues to face the triple whammy of slower growth in mainland China, the trade war uncertainty and social unrest.Approaching the end of a volatile year, Hong Kong continues to face the triple whammy of slower growth in mainland China, the trade war uncertainty and social unrest.While the former two external risks are not in the hands of Hong Kong and are subject to global development, the escalated social unrest and the lack of fiscal stimulus are bringing a higher downside risk to economic growth (Chart 1).Housing Is a Critical IssueFrom the priorities chosen, the Hong Kong government concluded that housing and land support are the most urgent issues to be tackled in the short run. However, there is still a lack of creativity and

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Why investors should temper optimism over a China trade rally

November 6, 2019

The economy is in worse shape than in 2015 and policies to boost growth are not as effective as they once wereTuesday’s rally in the renminbi was triggered by positive noises coming from the White House, raising hopes that the US may open the door to a trade deal with China, perhaps within weeks. The market moves saw the Chinese currency at one point strengthening past the seven-per-dollar mark.But investor optimism should be tempered. The world’s second-biggest economy remains in a tight spot. Compared with its previous slowdown in 2015, the Chinese economy is in worse shape today. The policies implemented to boost growth are proving less effective.If a trade deal does not happen, investors should be alert to another competitive depreciation of the renminbi — and a negative reaction in

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HK, Taiwan divergence result of economic policies

November 5, 2019

While the effect of the ongoing unrest on the Hong Kong economy is obvious, Taiwan was already doing better before the protests started.Hong Kong and Taiwan published their third-quarter growth figures very close in time, but the results were far apart.The two share the same global risks insofar as both are open economies affected by the US-China trade war and are heavily dependent on the mainland, whose economy is slowing down. And yet, while both economies grew at the same speed (2.9%), it was in opposite directions: Taiwan positively and Hong Kong negatively.It goes without saying that the Hong Kong economy has been bogged down by social unrest since mid-June, which explains the fast deterioration, but it is also true that both economies were already diverging before the social unrest

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Bolsonaro’s pilgrimage to Beijing

October 29, 2019

A strategic alliance between Brazil and China could be music to the ears for both leaders, but Bolsonaro does not want to look like one more vassal. Xi Jinping might need to think of a more exclusive offer to the President of the largest economy in Latin America.In his first official visit to China, Brazil’s President Bolsonaro will need to change his aggressive tone on China during his election campaign last year. In fact, from the mantra he kept them that “China wants to buy Brazil”, Bolsonaro may need to add a little but relevant twist, namely “I would be so pleased if China were interested in buying Brazil”. The reason for Bolsonaro’s pilgrimage to Beijing is simple: Brazil’s massive public sector, with an increasing need for funding, continues to crowd out the private sector, pushing

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The tricky link between the Hong Kong dollar and capital flows

September 13, 2019

The Hong Kong economy has been hit by a series of shocks, but it should resist taking drastic measures to keep foreign capital in the city.Hong Kong is a very special financial centre. First, it is highly dependent on Chinese financial intermediaries and corporates. Second, its currency is pegged to the US dollar through one of the tightest monetary arrangements, namely a currency board.Furthermore, Hong Kong’s economic cycle is mainly linked to mainland China but with both the Hong Kong dollar and interest rates governing the use of the currency following the US Federal Reserve. This means that as long as Hong Kong’s economy is doing well, the value of the HKD (that is, the US dollar under the peg) and the level of interest rates are not too much of a problem. If anything, a booming

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Last Tango In Biarritz: The End Of The G7?

August 28, 2019

The seemingly omnipotent G7, the meeting of the seven largest developed economies in the world, is weakening continuously and, as the author suggests, this should worry us all.The meeting of the seven largest developed economies in the world, the seemingly omnipotent G7, just concluded proceedings in Biarritz under the French presidency. Notwithstanding Emmanuel Macron’s attempt to climb the ranks of world leadership, the reality is that not much has been achieved at this summit, if at all.  In fact, although Macron has pushed Trump to discuss the matter of Iran, the reality is that not much has changed. In the same vein, Trump has not even bothered to seek the support of his main allies in his crusade against China’s economic policies, but rather quite the contrary. In fact, while G7

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Is this really a currency war or just a tantrum?

August 28, 2019

Since the People’s Bank of China (PBOC) allowed the yuan to surpass the dreaded level of 7 to the dollar on August 11, rivers of ink have flowed citing a new matter of contention between the U.S. and China, namely using currencies to gain competitiveness or, more simply, a "currency war."Previous versions of this opinion piece were published by Forbes and El PaisTo describe the events as a currency war may seem logical because another type of “war” between the U.S. and China, namely the trade war, has been on everybody’s mind for the past year and a half. Moreover, the Trump administration itself has continued this game by classifying China as a “manipulator” of its currency immediately after this latest devaluation.In the same way as the U.S. Treasury is not following its own script when

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A reflection on the Mercosur agreement

July 26, 2019

The EU accepts the deal because it is worried about the catastrophic scenario of a world without the WTO.

Just as Jean-Claude Juncker is leaving his post as President of the European Commission, and after 20 years of waiting, the European Union has signed a free trade agreement with Mercosur – the so-called single market, which is far from it given the recurrent differences in the economic policies of its Member States, especially between Argentina and Brazil but also of the smaller Paraguay and Uruguay.
Despite the large imperfections of this single market, its size – whether in population, with 260 million inhabitants, or in gross domestic product, of some EUR 2.2 billion – makes it undoubtedly of interest to the EU. This is because old Europe is increasingly dependent on other

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Too crowded bets on “7” for USDCNY could be dangerous

June 6, 2019

The Chinese yuan has been under pressure in recent days due to the slowing economy and, more importantly, the escalating trade war with the US. While the Peoples Bank of China has never said it will safeguard the dollar-yuan exchange rate against any particular level, many analysts have treated ‘7’ as a magic number and heated debates have begun over whether the number is unbreakable.

Chinese yuan has been under pressure in recent weeks due to the double dip in recent economic data and more importantly, the escalating trade war with the US. Since then, the CNY has shown weakness against USD, breaking 6.9 versus the USD, but also against major global currencies. The looming prospect of the China-US relationship, as well as a likely continued lax monetary policy in China, has all

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Expect a U-shape for China’s current account

May 28, 2019

As the US aims to reduce it’s bilateral trade deficit, China’s current-account surplus is back in the headlines. However, in reality China’s current-account surplus has significantly dropped since the 2007-08 global financial crisis. In this opinion piece, Alicia García-Herrero discusses whether we should expect a structural deficit or a renewed surplus for China’s current-account.

This opinion piece was first published in Asia Times.

China’s current-account surplus is back in the spotlight amid the US quest to reduce its bilateral trade deficit with the Asian country. However, the reality is that China’s current-account surplus has dropped significantly from its peak during the 2007-08 global financial crisis.
From China’s perspective, a narrower current-account balance may be

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Trade war: Is the U.S. panicking due to China’s big hedge?

May 9, 2019

U.S.-China trade war has suddenly taken centre stage following Donald Trump’s unexpected announcement to ramp up tariffs if no deal is reached. U.S. is in desperate need for a comprehensive victory, and China is ready to make concessions, but not to the extent of transforming its state-led economic model into a market-based economy.

This opinion piece was also published on Forbes

After several months of relative calm, the U.S.-China trade war has suddenly taken centre stage following Donald Trump’s unexpected announcement to ramp up tariffs from 10% to 25% on Friday if no deal is reached before then. Fear of uncertainty spread quickly among investors, sending global markets tumbling over the past few days.
So far, the market’s reading of Trump’s latest action has been ambiguous.

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What else China can do to support growth in the short term

April 23, 2019

Recent data shows the downward spiral in the Chinese economy has somewhat eased on a cyclical basis, but it is still too early to cheer for a full stabilization.

This opinion piece was originally published in The Corner.

Recent data shows the downward spiral in the Chinese economy has somewhat eased on a cyclical basis, but it is still too early to cheer for a full stabilization.
Beyond the fiscal and monetary stimuli announced during the two sessions of the 19th National People’s Congress in March 2019, the question is what else China can do to support growth in the short term.
Out of the key reasons for the cyclical slowdown in 2018, namely the worsening sentiment due to the US-China trade war and the rapid shadow banking crackdown, the former can be considered as an external

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Europe in the midst of China-US strategic competition: What are the European Union’s options?

April 8, 2019

With the trade conflict between the United States and China bringing China-US strategic competition into the open, the European Union faces an urgent question: how to position itself in the competition.

With the trade conflict between the United States and China bringing China-US strategic competition into the open, the European Union faces an urgent question: how to position itself in the competition. This paper reviews the impact of the US-led trade war against China and its immediate consequences for China, the US and the EU. Although protectionism can never be growth enhancing, European companies could see gains if the trade confrontation between China and the US ends up reducing their bilateral trade to the benefit of European companies that export to China. This is because

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