Fear of China in the global economy

Danger bells began to ring in the Chinese economy as renewed tensions in the housing market and deflation threatened growth prospects. Experts stated that China may not be the driving force of global growth due to the deflation experienced.

While official data shows growth rates are still well below pre-pandemic levels, July saw modest increases in industrial production, retail sales and fixed asset investment from a year earlier.

FEAR EXPLODED IN THE REAL ESTATE SECTOR

In addition, the increased probability of default by one of the real estate giants, combined with the loss of confidence and the continued decline in home sales, increased concerns in the real estate sector.

According to news reports, late interest payments by real estate giant Country Garden on two US dollar bonds plunged the company into a major payment crisis. The company has 30 days to avoid a formal default.

FEAR OF DEFLATION

Last week, the continued fall in producer prices and stagnant consumer prices in China also raised concerns about the risk of deflation.

Although the downward trend in producer prices continued in July, consumer prices fell for the first time since February 2021. In July, the Producer Price Index (PPI) decreased by 4.4 percent and the Consumer Price Index (CPI) decreased by 0.3 percent compared to the same period of the previous year.

Due to these problems, Beijing has made several commitments and has announced measures to support growth. But it avoided monetary and financial stimulus of the kind used in previous recessions. A weaker yuan and higher debt levels have led Beijing to be more cautious.

IT WILL AFFECT THE WORLD ECONOMY

These problems in the Chinese economy are expected to have a profound impact on the global economy. In its latest assessment, the International Monetary Fund (IMF) counted China among the downsides in the balance of risks.

The IMF said the recovery of the world’s second-largest economy after the coronavirus outbreak has slowed, and if it slows further, cross-border effects are likely.

MOODY’S ECONOMIST WARNED

Harry Murphy Cruise, an economist at Moody’s Analytics, also warned that China’s sluggish recovery will hamper global growth in the medium term, The Guardian reported.

The Moody’s economist said: “In past recessions, we have generally focused on China as the engine of growth. “As we grapple with structural concerns in the Chinese property market and the disruption in the transition to consumer-led growth, this momentum may not be as favorable this time around.”