EU Growth Dragged by China Exports and Lost Market Share, Goldman Reports
Goldman Sachs Analysis of EU Economic Challenges
By Akriti Shah and Rashika Singh
China's Export Surge and EU Market Share Loss
July 2 (Reuters) - The bigger drag on European Union growth is losing market share to China rather than a widening trade deficit with the Asian country, Goldman Sachs said on Thursday, but added any response from the bloc would stop short of U.S.-style blanket tariffs.
Faced with weak domestic demand and excess capacity, Chinese manufacturers have flocked to international markets, increasing competition for the European Union (EU) in the Asia-Pacific, Latin America and Eastern European markets, Goldman said.
Recent Economic Indicators
The European Central Bank recently trimmed its growth outlook for the rest of the year.
Third-Market Competition Impact
"We estimate that this third-market competition, rather than the bilateral deficit itself, accounts for most of the European growth drag from China's export-led model," the Wall Street brokerage said.
Trade Data and Sectoral Effects
Export Growth Comparison
Overall, China's exports to the EU increased by about 16% in the first five months of this year, while the EU's exports to China rose by less than 10%, Goldman estimated.
Manufactured Goods and Machinery
The biggest hit has been in manufactured goods, especially transport equipment and industrial machinery, where China's cost advantage comes into play, Goldman said.
Global Export Share Shifts
Europe's share of exported capital goods has fallen to 43% of global volume from 54% in 2005, while China's has surged to 24% from 7%, including a 50% increase in terms of machinery exports to Europe, the brokerage said.
EU Policy Response and Outlook
Debate on Trade Measures
Earlier this month, EU leaders debated new and tougher measures to curb the trade deficit.
Expected Policy Actions
Goldman expects the EU to shift its largely accommodating stance towards China to a more assertive—but still targeted—trade policy response.
Limits to Tariff Approaches
However, "a US-style blanket tariff" regime remains unlikely since the EU would not want to jeopardize access to a key market for critical materials such as rare earths, the brokerage said.
Sectoral Focus for Policy
It expects policy action to first focus on sectors where the evidence of trade diversion and industrial drag is strongest, including steel, machinery and basic chemicals.
(Reporting by Akriti Shah and Rashika Singh in Bengaluru; Editing by Savio D'Souza)
