Tags: oil | china | foreign | reserves

Goldman: Pricier Oil Means China's Foreign Reserves Will Shrink Even Faster

Image: Goldman: Pricier Oil Means China's Foreign Reserves Will Shrink Even Faster

(Getty/AFP)

Tuesday, 24 Jan 2017 12:22 PM

Much focus is on how China's capital outflows will impact the world's biggest pile of foreign-exchange reserves, but another issue in need of attention here is the rally in crude, argues Goldman Sachs Group Inc.

In a country where oil prices play "a disproportionate role" in the balance of payments — and China's crude output is forecast to fall as much as 7 percent this year — the commodity's bullish outlook poses a serious threat to reserves that have already shrunk more than 20 percent in the past two years.

"The outlook for the balance of payments has deteriorated from a year ago, because oil prices are now on an upward trajectory, which could push the current-account surplus to around $200 billion this year, down from $331 billion as recently as 2015," Goldman analysts Robin Brooks and Michael Cahill wrote in a Jan. 23 note.

That 40 percent slump is part of the picture for reserves, which contracted to $3.01 trillion at the end of 2016 from a record $3.99 trillion in mid-2014. A stronger dollar will also drive outflows.

Goldman estimates the greenback will strengthen 15 percent by the end of 2019 against its major developed-market peers, so China is likely to keep weakening its currency fixing to maintain stability. The analysts reckon this could trigger a renewed pick-up in capital flight, which abated to $532 billion in 2016 from $736 billion in 2015. China even registered net inflows via its capital and financial accounts in December for the first time for 1 1/2 years.

Still, Goldman sees capital outflows slowing this year to $500 billion, and it expects reserve losses to accelerate to $394 billion from $369 billion in 2016 because the deterioration in the current account, led by surging oil prices, is "so sizable."

 

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
StreetTalk
Much focus is on how China's capital outflows will impact the world's biggest pile of foreign-exchange reserves, but another issue in need of attention here is the rally in crude, argues Goldman Sachs Group Inc.In a country where oil prices play a disproportionate role in...
oil, china, foreign, reserves
295
2017-22-24
Tuesday, 24 Jan 2017 12:22 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved