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Since the beginning of 2019, Sino-US trade negotiations are still pending, and the macro-policy path at home and abroad may be adjusted accordingly according to the results of the negotiations. Therefore, when we forecast the economic trend in the second half of the year, we choose to follow the scenario analysis framework in the macro outlook at the end of last year.
Since we released the macroeconomic outlook report for 2019 in November last year, the Sino-US trade negotiations have experienced several setbacks, and the current situation falls between the "benchmark situation" and the "pessimistic situation" proposed six months ago. In this report, we update our economic outlook for 2019 in the light of recent changes in the macro-environment at home and abroad, and specifically analyze the possible policy adjustments in China under different trade negotiation situations.
Under the benchmark scenario, we assume that Sino-US trade policy will remain the status quo. In this case, China may maintain its long-term policy objective of "structural deleveraging", but at the same time adopt more restrained "counter-cyclical adjustment" to hedge the downward pressure of aggregate demand. Meanwhile, the Fed will cut interest rates by 25 basis points in 2019.
In an optimistic scenario, the United States will abolish the 25% tariff imposed on $200 billion of Chinese exports, but domestic monetary and fiscal policies may also be more "prudent" if pressure on external demand eases. On the other hand, the Fed does not need to cut interest rates during the year.
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