Concerns grow over China’s economy

Concerns that economic activity, which had increased with the removal of measures taken in the context of the Covid-19 epidemic in China last year, may again tend to slow, putting China back at the center of the agenda.

The effects of hawkish monetary policies, which have been taking place for some time around the world, on economies are becoming more evident every day.

While supportive policies implemented around the world following the Covid-19 epidemic that began in China in 2020 gave way to hardline policies starting last year, economic activity that slowed following the measures taken within the framework of the fight against inflation brought the fear of recession to the agenda.

While the US Federal Reserve’s (Fed) policy rate hike to the highest level in 16 years as part of the fight against inflation fuels recession concerns, ongoing negative news in China, one of the most important production centers of the world economy. , raises questions about the country’s economy.

The tension between China and Taiwan, the increase in tension in Sino-US relations, and the possibility of such geopolitical tensions spilling over into the broader region are also emerging as the main risk factors for the country’s economy.

While events in China, the world’s second-largest economy, are causing volatility in the prices of many assets, they are also raising uncertainties for the global economy, which is reeling between inflation and recession.

THE WHEELS ARE STOPPED IN CHINA

Analysts drew attention to concerns that the growth trend, which has been strengthened by accelerating spending in the country, may have been halted recently, noting that signals in the macroeconomic data releases were closely watched.

Stating that the signs that started with the slowdown in inflation data are getting stronger by the day, the analysts said that similar signs in global economies may also negatively affect the Chinese economy.

Consequently, while the Consumer Price Index (CPI) in China rose 0.7 percent in March, below expectations, the Producer Price Index (PPI) declined 2.5 percent.

The analysts pointed out that the slowdown in inflation data may indicate a weakening in spending and added that this situation fuels questions about the country’s growth in an environment where fears of recession are intensifying around the world.

IN THE FIRST QUARTER THE SECTORS SLOW DOWN, EVEN GROW

Although the country grew 4.5 percent in the first quarter, exceeding expectations, the poor performance of the manufacturing industry is striking.

As a result, industrial production in China rose 3.9 percent annually and 3 percent since the beginning of the year, below expectations.

On the other hand, while the construction sector in the country also tended to slow down, investments based on values ​​decreased 5.8 percent since the beginning of the year.

The manufacturing Purchasing Managers’ Index (PMI), which pointed to expansion above the 50 level in China in January, fell back below the 50 level in April after three months of expansion, indicating that the contraction in the manufacturing industry has begun again. The manufacturing PMI for April fell to 49.2 and the services PMI to 56.4.

Analysts noted that all sub-indices in the manufacturing PMI data fell compared to the previous month and reported that demand fell more than production.

Stating that the contraction in iron and steel production gained further strength in March, analysts said this may signal a slowdown in demand stemming from the housing market.

THE CENTRAL BANK IS EXPECTED TO SUPPORT THE ECONOMY

Analysts stated that the People’s Bank of China (PBoC) is expected to maintain its supportive stance with such developments and stated that the Bank took these steps mainly with liquidity injections.

On the other hand, analysts noted that the recent slowdown in inflation may persuade the PBoC to cut the policy rate, adding that expectations of a 10 basis point rate cut in May have started to surface in the markets.

Emphasizing that the Chinese government is also expected to maintain supportive policies, the analysts said that despite the above-expected growth data, signs of a slowdown seen in macroeconomic data were taken into account. (AA)