China is still working to meet its economic growth expectations, following the end of strict lockdown restrictions to curb the spread of the Corona virus, known as “Zero Covid”.
And with growing numbers pointing to a possible slowdown, Beijing’s economic woes worsened last week, after it emerged that the country had fallen into a deflationary trap, according to the newspaper.Financial Times“.
On Wednesday, China acknowledged that the recovery of the world’s second-largest economy in the post-pandemic period will be “difficult”, and set the target growth for the country’s economy this year at about 5 percent.
However, a group of major banks and brokerage firms cut their growth forecasts for the Chinese economy for this year, after a series of disappointing data, and concerns about the ailing real estate sector there.
Supporting the economy or canceling incentives?.. China is facing an ordeal of choices
A report published by Axios said, on Wednesday, that China is facing an economic ordeal that involves a lot of complexity, as it must choose between introducing more incentives to support the economy, or withdrawing government incentives that fueled the real estate bubble, and risking a deeper economic slowdown that could lead to a social unrest.
According to a note issued by Morgan Stanley on Wednesday, it now expects China’s gross domestic product to grow 4.7 percent this year, down from its previous forecast of 5 percent growth.
It also cut its forecast for 2024 gross domestic product growth to 4.2 percent from 4.5 percent.
This week, JPMorgan cut its growth forecast for China’s gross domestic product for the current year, to 4.8 from 5 percent, while Barclays cut the forecast to 4.5 percent.
The Financial Times asked about the possibility of an impact of any economic slowdown in China on other regions of the world, especially with the continued high inflation rates.
Is the rest of the world affected?
At the present time, economists say that there is “no reason for concern” for several considerations, most notably that expectations indicate that “the Chinese downturn will be temporary.”
With the exception of China, the world has been experiencing spurt inflation for the past two years. While the pace of price increases has been high in most countries, the reasons differ markedly.
The price increases may have been caused by problems in global supply chains, but in the US they were amplified by very strong growth in consumer demand.
The surge in demand followed huge fiscal expansions in 2020 and 2021, when the Trump and Biden administrations gave large checks to families to combat the COVID-19 crisis.
The Chinese economy.. bleak outlook despite intangible growth
Although the Chinese economy is growing this year, many entrepreneurs are stagnating, according to the Wall Street Journal.
Much less important was strong demand in Europe and emerging economies, after the Europeans suffered from the Russian invasion of Ukraine, where the crisis came from higher natural gas prices.
In poor countries, higher food and energy costs lead to an even greater rise in the price level.
“In the event of a Chinese deflation, price pressures are likely to be in a domestic range,” said Paul Donovan, UBS chief economist.
China has contributed 40 percent to global growth rates over the past 10 years, according to Dhaval Joshi, chief strategist at BCI, an independent global investment research data firm.
Any economic problems in Beijing would affect global output, but for now, the fallout from China’s deflation seems manageable, both for the country itself and for the rest of the world.
2023-08-18 04:35:56
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