### Summary
The Chinese economy has slipped into deflationary mode, with retail sales, industrial production, and exports all missing forecasts. Shrinking domestic demand and a debt-fueled housing crisis are the main causes behind this slowdown.
### Facts
- 📉 Retail sales in July grew by 2.5% year-on-year, compared to 3.1% in June.
- 🏭 Value-added industrial output expanded by 3.7% y-o-y, slowing from 4.4% growth in June.
- 📉 China's exports fell by 14.5% in July compared to the previous year, and imports dropped 12.4%.
- 💼 Overall unemployment rate rose to 5.3% in July, with youth unemployment at a record 21.3% in June.
- 📉 Consumer Price Index-based inflation dropped to (-)0.3%, indicating a deflationary situation.
- 🏢 China's debt is estimated at 282% of GDP, higher than that of the US.
### Causes of the slowdown
- The debt-fueled housing sector collapse, which contributes to 30% of China's GDP.
- Stringent zero-Covid strategy and lockdown measures that stifled the domestic economy and disrupted global supply chains.
- Geopolitical tensions and crackdowns on the tech sector, resulting in revenue losses and job cuts.
### Reaction of global markets
- The S&P 500 fell 1.2% following the grim Chinese data.
- US Treasury Secretary warns China's slowing economy is a risk factor for the US economy.
- Japanese stocks and the Indian Nifty were also impacted.
- China's central bank cut its benchmark lending rate, but investors were hoping for more significant stimulus measures.
### Global market concerns
- China's struggle to achieve the 5% growth target may impact global demand.
- China is the world's largest manufacturing economy and consumer of key commodities.
- A slowdown in China could affect global growth, with the IMF's forecast of 35% growth contribution by China seeming unlikely.
### Impact on India
- India's aim to compete with China in the global supply chain could benefit if Chinese exports decline.
- However, if China cuts back on commodity production due to slowing domestic demand, it may push commodity prices higher.
### Summary
The global economy is showing signs of decoupling, with the US economy remaining strong and China's economy disappointing at the margin. The recent data suggests that the US economy is resilient, with consumption and other indicators pointing in a positive direction. However, there are concerns about the bear steepening of the US curve and the repricing of the long end of the curve. In contrast, China's economy continues to struggle, with weak data and monetary policy easing. Japan has surprised with positive data, but there are questions about whether the current inflation shift will lead to tighter monetary policy. Overall, there are concerns about a potential global economic recession and its impact on various economies.
### Facts
- 💰 Despite the decoupling of the US and China economies, concerns remain about the negative impact of a China slowdown on global growth.
- 💹 Recent data show that the US economy, particularly consumption, remains resilient.
- 🔒 The bear steepening of the US curve and the repricing of the long end of the curve are causing concerns.
- 🇨🇳 In China, weak data on consumption and investment and declining house prices continue to affect the economy. The PBoC has eased monetary policy.
- 🇯🇵 Japan's 2Q data surprised with strong export growth, but there are concerns about the impact of a potential inflation shift on global yields.
- 🌍 The global economy is at risk of recession, with concerns about the impact on emerging market economies and the US economy.
### Summary
NatWest expects further downside for the Australian dollar (AUD) due to weak Chinese economic activity, lack of significant policy response, and potential rate hikes by the Reserve Bank of Australia (RBA).
### Facts
- 💪 Higher long-end rates, relative US growth outperformance, sticky front-end Fed pricing, and August seasonals are all factors supporting the US dollar (USD).
- 💼 Incremental stimulus from Chinese authorities may not be enough to halt the fall of AUD, especially with a slowing global growth and lack of FX reaction to China's monetary policy easing.
- 📉 The NWM China Stress Index indicates a further slowing of economic conditions in China.
- 🏗️ Demand for construction-related activities outside of China may fade in the coming months due to higher borrowing costs and reduced steel demand outlook for the US and Europe.
- 📉 Australian employment declined in July, but it's too early to assess the strength of the labor market based on one month of weak data.
- 💰 The increase in prices raises questions about whether CPI inflation in Australia will fall back to the target range.
- 💼 The RBA has retained the optionality for further rate hikes, but weakness in data complicates future rate hikes.
- 🌍 Overall weakness in the Chinese economy will continue to weigh on AUD, but major policy response/stimulus from Chinese authorities could pose a risk to the bearish view on AUD.
- 💼 One more rate hike by the RBA may not be enough to support AUD considering the weakness in China.
An economic crisis in China is unlikely to have a major impact on the US due to limited exposure in terms of investments and trade, and it may even benefit the US by lowering inflation, according to economist Paul Krugman.
China's unexpected economic slowdown, driven by excessive investment in the property sector and local government spending, is leading experts to question whether a collapse is imminent, although they believe a sudden collapse is unlikely due to China's controlled financial system; however, the slowdown will have implications for global growth and emerging markets, particularly if the U.S. enters a recession next year.
China's economic slowdown is worrisome for global markets as it is one of the largest buyers of commodities.
China's economic struggles, including a real estate slump, high youth unemployment, and rising tensions with the West, could lead to deflation and sluggish growth, potentially impacting the global economy and causing a "new normal" of slower GDP growth worldwide.
China's economic slowdown is causing alarm across the world, as it is expected to have a negative impact on global economic growth, leading to reduced imports and trade, falling commodity prices, a deflationary effect on global goods prices, and a decline in tourism and luxury spending.
The global economy may face slow growth due to record levels of government debt, geopolitical tensions, and weak productivity gains, which could hinder development in some countries even before it begins.
Forecasters have decreased their growth expectations for China due to deflation, rising youth unemployment, and a property-market crisis, with GDP predicted to rise by only 5.1% in 2023 and 4.5% in 2024.
UBS reports higher than expected profits, job creation in the US slows, and markets rally on weaker economic data and hope for a pause in interest rate hikes. China's factory activity shrinks but at a slower pace, while retail sales increase. There are opportunities for investors in other Asian markets.
The global economy is expected to slow down due to persistently high inflation, higher interest rates, China's slowing growth, and financial system stresses, according to Moody's Investors Service, although there may be pockets of resilience in markets like India and Indonesia.
China's economic slowdown, driven by a debt-ridden and overbuilt property sector, is not expected to have a significant impact on the global economy or US exports, although a prolonged downturn could have broader consequences. While companies like elevator maker Otis will feel the effects, China's reduced growth is unlikely to be contagious beyond its borders.
The prospect of a prolonged economic slump in China poses a serious threat to global growth, potentially changing fundamental aspects of the global economy, affecting debt markets and supply chains, and impacting emerging markets and the United States.
Forecasts for China's economic growth in 2023 and 2024 have been cut, potentially hindering the country's goal of becoming a "medium-developed country" by 2035 and surpassing the US as the world's No.1 economy.
China's economy is showing signs of slowing down, including a decrease in GDP growth rate, declining exports, deflationary consumer price index, high youth unemployment, a weakening yuan, and a decrease in new loans, which could have global implications.
China's economic growth has slowed but has not collapsed, and while there are concerns about financial risks and a potential property crisis, there are also bright spots such as the growth of the new energy and technology sectors that could boost the economy.
China's economic problems are more likely to impact its neighboring countries and Europe than the United States, according to U.S. Deputy Treasury Secretary Wally Adeyemo, who emphasized the need for China to address its structural economic issues.
The global economy is expected to be influenced by three key factors in the next five years, including increased labor bargaining power, potential conflicts between central banks and governments over borrowing costs, and the power struggle between the US and China, which will lead to higher risk-free rates and lower expected equity risk premiums for investors.
Asian markets are expected to finish the week strong due to positive movements in the U.S. and Europe, although the release of economic data from China may dampen the mood, as it includes indicators such as house prices, fixed asset investment, and unemployment. The Chinese government is aiming to support the economy, but doubts remain about reaching the 5% GDP growth target and trade relations with the West continue to deteriorate. However, if investors continue with the bullish momentum from Thursday, these concerns may be temporarily set aside.
Signs of improvement in China's economy, such as improving credit demand and easing deflationary pressures, may not be enough to stabilize the economy due to bigger concerns of decreasing affordability, tight wages, and rising costs that have not been addressed. A comprehensive policy revamp may be necessary for China's economy to recover.
China's economic data for August shows a mixed picture, with retail sales and production on the rise, property investment declining, and the urban jobless rate ticking downward, leading experts to believe that while there may be modest improvements in growth, a strong recovery is still unlikely.
Germany is projected to be the most heavily impacted by the global economic slowdown due to higher interest rates and weaker global trade, according to the Organisation for Economic Co-operation and Development (OECD), with its economy likely to shrink this year alongside Argentina and experience a weaker 2024. The slowdown in China, inflationary pressures, and tightening monetary policy are among the factors affecting Germany's growth. The OECD also warned of persistent inflation pressures in various economies and called for central banks to maintain restrictive interest rates until underlying inflationary pressures subside.
Treasury Secretary Janet Yellen states that U.S. growth needs to slow to its potential rate in order to bring inflation back to target levels, as the robust economy has been growing above potential since emerging from the COVID-19 pandemic. Yellen also expects China to use its fiscal and monetary policy space to avoid a major economic slowdown and minimize spillover effects on the U.S. economy.
The outlook of U.S. companies on China's markets in the next five years has hit a record low due to factors such as political tensions, tariffs, slow Covid recovery, and issues in the real estate market; however, complete decoupling between the two economies is unlikely.
The Organisation for Economic Cooperation and Development (OECD) has lowered its forecast for global economic growth in 2024 to 2.7%, while predicting inflation to remain above central bank targets despite interest rate hikes; fears of a slowdown in China and reduced growth in the US contribute to the pessimistic outlook.
China's economic slowdown is unlikely to trigger a global catastrophe, but multinational corporations and those indirectly linked to China will still feel the effects as household spending decreases and demand for raw materials drops. China's reduced investment abroad may affect developing countries' infrastructure projects, while the impact on China's foreign policy remains uncertain. However, concerns of a financial contagion similar to the 2008 crisis are deemed unlikely due to differences in China's financial infrastructure. While the extent of the impact is unclear, local concerns can still have unforeseen effects on the global economy.
China's economic growth appears to be slowing down, with issues such as an aging population and a collapsing housing sector leading to speculation that the country's economic miracle may be coming to an end, while its diplomatic strategies have also caused strain on international relationships.
China's economic slowdown, driven by a real estate crisis and prolonged Covid-19 measures, is raising doubts about its status as the largest economy in the world by 2030, while India is emerging as a promising economic powerhouse and attracting significant investments.
Global economic growth is expected to slightly increase in 2024, but the United Nations warns of a precarious situation and significant economic headwinds that may lead to a slowdown in the U.S. and a potential recession in the eurozone. The UN also highlights the escalating debt distress among frontier economies and calls for more oversight and regulation of food companies in the global trade system.
The World Trade Organization has revised its forecast for global trade growth, halving its estimate due to rising interest rates and various economic challenges, with a particular impact on iron, steel, office equipment, textiles, and clothing. The slowdown in trade has raised concerns about the potential negative impact on living standards worldwide, particularly in poor countries.
The US economy is predicted to slow down by mid next year, which will have a negative impact on global GDP, according to Neelkanth Mishra, Chief Economist for Axis Bank. Mishra also mentioned that China will grow slowly but not collapse, while India will be affected through various pathways such as a decline in services growth, goods demand, dumping of products, and financial market volatility. However, he believes that India's trajectory looks good in the next 5-7 years.
The U.S. economy is growing faster than expected, with the International Monetary Fund upgrading its growth forecast due to strong business investment, worker shortages, and government spending, while the global economy faces a mixed recovery with slower growth in the euro area and China.
China's economy is expected to slow in the third quarter due to weakened demand, but increased government support may help Beijing achieve its full-year growth target.
The Chinese economy is expected to stabilize in the coming months with the implementation of stimulus measures, but economic growth will be slower in the long run as authorities focus on addressing structural issues such as debt and property market downturns.
China's economy is expected to have slowed in the third quarter due to weak demand, but increased stimulus measures could help the country reach its full-year growth target. GDP growth is predicted to be 4.4%, down from 6.3% in the previous quarter, and while recent data shows some stabilization, more measures may be needed to support economic activity.
Chinese GDP growth beats forecasts at 4.9% in Q3, retail sales and industrial output for September also surpass expectations, but concerns over widening conflict in the Middle East and the Gaza hospital blast overshadow positive economic data.
The U.S. economy is surpassing China's growth as U.S. retail and industrial data continue to exceed expectations, leading to concerns about inflation and potential interest rate hikes by the Federal Reserve, while energy prices soar and tensions rise in the Gaza-Israel conflict.
/cloudfront-us-east-2.images.arcpublishing.com/reuters/VQI4WTILYVPFDNGYA7HEHN42GU.jpg)