UBS Securities: Temporary trade deficit without obstruction of RMB exchange rate

Export growth in March is expected to rebound from the trough of February, but exports will have to decline later this year as global demand slows, UBS Securities reported March 10.　　The temporary trade deficit has little impact on the renminbi's exchange rate, it said. China's import and export growth rate fell sharply in February, with year-on-year growth falling to 2.4% and 19.3% per cent, a report by Wang Tao, chief economist at UBS Securities China, said. However, there is no need for investors to be overly concerned about the slowdown in foreign trade or the trade deficit.　　Since December, exports have increased by 21.3% over the same period last year, and imports have grown by 36%. reported that strong import growth in China reflects the strong domestic demand and the two increase in commodity prices.　　China's import prices have risen sharply in the past few months. In 1, the year-on-year increase in imports of 36% per cent in February, UBS Securities China was expecting a 6.8% rise in iron ore and oil prices, which cut the two-month trade surplus by 16 billion. China's export prices have also returned to pre-crisis levels.　　Excluding price factors, real export growth slowed in 1-February, up 10% from a year earlier, while real imports rose to about 21% per cent year-on-year.　　UBS Securities China expects import and export growth to rebound in March from the trough of February, but export growth should decline later this year as global demand slows. The report estimates that exports rose by around 16% in the year to 2011, and imports grew by about 20% per cent.　　Therefore, the annual foreign trade surplus will reach about 150 billion U.S. dollars, less than 2010, but the scale is still considerable. The report also notes that the temporary trade deficit of February will have little impact on the renminbi's exchange rate. As the renminbi has risen against the dollar over the past few months, particularly from the standpoint of real exchange rates (as inflation in China is higher than in the US) and the US labour market has improved, the pressure to revalue the renminbi may have diminished. However, the fundamentals underpinning the renminbi's appreciation remain unchanged, and UBS Securities China still expects the renminbi to appreciate 5-6% against the dollar by the end of 2011.