### 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
Growing concerns about global economic growth and uncertainties in monetary policy have led to turbulence in financial markets, with rising bond yields and a decline in equity markets. Key factors affecting growth include interest rates, bond yields, and access to funds, which may result in a credit crunch and a more risk-averse environment in capital markets. China's shift towards self-sufficiency, combined with a more prudent policy environment, slower population growth, and trade sanctions, will lead to slower and more erratic growth in the country. Although there are near-term concerns, the longer-term outlook for global growth remains positive.
### Facts
- Global economic growth is a concern, reflected in rising bond yields and a decline in equity markets.
- Policymakers, particularly in the US, are worried about overtightening monetary policy.
- Western economies, including the UK, have proven resilient despite expectations of a recession.
- Lower inflation will boost spending power, but growth will depend on where interest rates and bond yields settle.
- Businesses face challenges in raising funds due to a credit crunch, tough lending conditions, and a risk-averse capital market environment.
- The International Monetary Fund forecasts global growth to slow from 3.5% last year to 3% this year and next, with Asia being a major driver.
- Concerns about deflation in China exist, but low inflation is more likely.
- China's shift towards self-sufficiency in response to trade wars has coincided with a more prudent policy environment and the need to curb inflation and manage debt overhang.
- A shrinking population and structural changes in China will result in slower and more erratic growth.
- Private sector activity remains strong in Asia, and Japan's economy is experiencing an economic rebound.
- Western economies previously experienced a prolonged period of cheap money, which led to imbalances and misallocation of capital.
- Prudent monetary policy in some emerging economies provides more room to act in response to economic weakness.
- Concerns exist regarding rising policy rates in the US, UK, and euro area and the tightening of central banks' balance sheets.
- The definition of a risk-free asset is being questioned, as government bonds, previously considered safe, have witnessed negative total returns.
- There has been a rise in shadow banking and non-bank financial institutions, with collateral in the form of government bonds playing a crucial role.
Overall, the focus is shifting from inflation to growth, and future policy rates may need to settle at a high level. High levels of public and private debt globally limit policy maneuverability and expose individuals and firms to higher interest rates.
### Summary
The People's Bank of China is expected to cut interest rates, but may need to take a larger action to calm the uncertainty in the market. Other factors like the US Federal Reserve's Jackson Hole Symposium and the BRICS summit will also impact investor sentiment.
### Facts
- 💰 The People's Bank of China is expected to cut interest rates to soothe market concerns.
- 💼 Bank of Korea and Bank Indonesia are expected to keep interest rates on hold this week.
- 🌍 The US Federal Reserve's Jackson Hole Symposium and the BRICS summit will affect investor thinking.
- 📉 Chinese policymakers' conservative nature may result in more aggressive moves in the interest rate cut.
- 🔒 The currency is already weak and vulnerable, posing a risk to further cuts.
- 📉 Economists are lowering Chinese GDP growth forecasts, doubting the country will achieve its 2023 goal.
- 🏘️ The real estate crisis and the scale of indebtedness raise questions about the stability of the shadow banking system.
- 🔧 Beijing is taking steps to boost confidence, but measures seem insufficient.
- 📉 Chinese blue chip stocks have decreased by 6% in the last two weeks.
- 🌐 Global markets are facing a deteriorating backdrop, with the dollar surging, US Treasury yields rising, and stock markets experiencing instability.
- 🗓️ Key developments on Monday include China's interest rate decision, Thailand's Q2 GDP, and Hong Kong's July inflation.
Foreign banks are lowering their China forecasts due to signs of distress in the property sector, with missed payments by developer Country Garden and trust company Zhongzhi Group contributing to rising concerns.
China's economy is facing a downward spiral due to a crisis in the debt-laden property sector, prompting seven city banks to reduce their growth forecasts for the country; concerns include falling into deflation, high unemployment rates, and the need for more proactive government support.
China's economic slowdown, marked by falling consumer prices, a deepening real estate crisis, and a slump in exports, has alarmed international leaders and investors, causing Hong Kong's Hang Seng Index to fall into a bear market and prompting major investment banks to downgrade their growth forecasts for China below 5%.
China's economic challenges, including deflationary pressures and a slowdown in various sectors such as real estate, are likely to have a global impact and may continue to depress inflation in both China and other markets, with discounting expected to increase in the coming quarters.
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 slowdown is causing alarm worldwide, with countries experiencing a slump in trade, falling commodity prices, and a decrease in Chinese demand for goods and services, while global investors are pulling billions of dollars from China's stock markets and cutting their targets for Chinese equities.
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.
China's economy will struggle with low growth under 5% through 2024, leading to a "structural hard landing" due to tight monetary policy, disappointing economic reopening, and challenges in real estate and stock markets, according to TS Lombard strategists.
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.
Policymakers expect slower growth in China, potentially below 4%, as the country transitions to a consumption-driven economy, which could have a negative impact on the global economy and alleviate inflationary pressures.
Analysts have lowered their short-term forecasts for the Canadian dollar due to China's weakening economy and the widening yield gap between the US and Canada, but still project the currency to strengthen in the long term.
Several international financial institutions have lowered their growth forecasts for China's economy below the government's target due to weak exports and a property crisis, posing a challenge despite Beijing's optimistic rhetoric.
China's economy is expected to grow less than previously anticipated due to struggles in the property market, leading economists to predict further downgrades and posing risks to both the domestic and global economy.
The International Monetary Fund (IMF) plans to advise China to address issues such as weak domestic consumption, the troubled real estate sector, and local government debt, in order to boost both Chinese and global growth, according to IMF Managing Director Kristalina Georgieva. The IMF will urge China to shift its growth model away from debt-driven infrastructure investment and real estate and focus more on domestic consumption. China's aging population, falling productivity, and problems in the real estate sector are factors hindering its growth rate. The IMF is set to release new global growth forecasts, reflecting concerns about low GDP growth worldwide, with the United States being the only major economy to have recovered pre-pandemic levels. China's growth rate is crucial for both Asia and the rest of the world, given its significant contribution to global growth. However, there is a trend of some outflow from China, which needs to be monitored.
Britain's main manufacturing trade body has lowered its growth forecast for the sector due to a decline in factory output and economic uncertainty, with expectations of a 0.5% fall in output in 2023 and a growth of only 0.5% in 2024.
The OECD forecasts that a stronger U.S. economy will help offset the global slowdown this year, but a weakening Chinese economy will have a bigger impact next year.
The Asian Development Bank (ADB) has lowered its growth forecast for developing Asia due to weakness in China's property sector and risks associated with El Niño, but still expects resilient growth driven by domestic consumption and investment.
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.
The Asian Development Bank has lowered India's GDP growth forecast for FY 2023-24 to 6.3% due to the impact of extreme rainfall patterns on agriculture, while maintaining a growth projection of 6.7% for FY 2024-25, citing corporate profitability and strong bank credit as key factors. Additionally, the bank expects inflation to moderate and retail sales to be affected by food inflation, while India's external trade is expected to be affected by weak global demand. Despite these challenges, India's GDP growth outlook remains higher compared to its Asian peers.
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.
Summary: The U.S. stock market had a bad quarter, with all indexes falling, while the World Bank lowered its growth forecast for developing economies in East Asia and the Pacific, and China's demand for commodities continues to grow despite the downgrade. Additionally, a last-minute spending bill was passed to avoid a government shutdown, and this week's focus will be on the labor market.
China's growth is expected to slow down in 2024, with the World Bank attributing the gloomy outlook to a slowdown in China, weak indicators, stagnant house prices, increased household debt, and trade tensions with the US.
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.
China's economic growth this year may be as low as 2 percent, half of what the International Monetary Fund predicts, due to problems in the property sector, weak foreign direct investment, and other structural issues, according to Daniel Rosen of the Rhodium Group. The IMF has forecasted 5.2 percent growth for China, but Rosen believes growth above 3 percent is unlikely in the medium term. Additionally, concerns are rising that China's economic challenges could hinder global growth.
The World Bank has lowered its GDP growth estimate for China in 2024 due to elevated debt and weakness in the property sector, which has been hit by a downturn leading to unfinished homes and a decline in housing prices. While the impact on the overall economy may be limited, smaller regional banks and local government financing vehicles (LGFVs) are at higher risk. Policymakers have signaled a shift in their approach to the property market, and the long-term prospects of the sector may be hindered by demographic factors and a high rate of home ownership. However, experts believe that real estate will remain an important industry in the future.
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 IMF predicts that the world economy will grow at a slower pace of 2.9% in 2024 due to ongoing risks from higher interest rates, the war in Ukraine, and the eruption of violence in the Middle East, highlighting the need for tight monetary policy to combat inflation.
Germany has revised its economic forecast for 2023, projecting a 0.4% decline in GDP due to the energy price crisis, inflation concerns, and weakening global economic partners, such as China.
China's weak economic recovery and the risks associated with its property crisis are likely to impact Asia's economic prospects, according to the International Monetary Fund (IMF), leading to a cloudier outlook for the region and potential spillover effects on commodity-exporting countries with close trade links to China. The IMF revised its growth estimate for Asia down to 4.2% for 2024, and emphasized the need for central banks in the region to exercise caution in cutting interest rates due to sticky core inflation and other global factors such as the Middle East conflict. Additionally, the IMF warned that Japan's normalization of monetary policy could have significant global implications.
China's economic growth forecast for next year has been downgraded by the World Bank due to persistent difficulties such as elevated debt, property weakness, and an aging population.
The IMF downgraded its growth forecasts for China, citing a weakening property sector and expects China's GDP to decline by as much as 1.6% relative to the baseline by 2025, while world GDP would decline by 0.6%.
China's economic growth forecast for next year has been downgraded by the World Bank due to the ongoing slowdown in the country's real estate market, which is expected to put pressure on global growth.
High inflation is expected to persist in the global economy next year, posing a higher risk than initially forecasted and indicating that interest rates will remain elevated for a longer period, according to a Reuters poll of economists. Most central banks are delaying interest rate cuts until the second half of 2024, with inflation still rising faster than desired. The poll also reveals downgraded growth forecasts and upgraded inflation predictions for a majority of the surveyed economies. The U.S. economy stands out with unexpected strong growth, while some economists suggest that current policy may not be restrictive enough.
