China’s Economic Recovery Faces Setback Amidst Global Slowdown

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  • China’s economic recovery faces fresh risks from global slowdown.
  • The cost of shipping goods from China has slumped to the lowest level in more than two years.
  • China’s shaky recovery continued in September, with a pickup in car and home sales in the biggest cities compensating for weak global demand.

China is facing one of the worst economic slowdown as falling demand finally eases the congestion that had plagued global supply chains. The outlook is based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge was at 5, unchanged from August, signaling that the economic rebound maintained momentum.

A Booming Phase Undermined By Slowdown

Overall, China’s economy picked up in the third quarter from the near contraction in the April-June period, but that rebound was undermined by Covid lockdowns and outbreaks in cities across the country, the continued housing slump, and weakening export demand. A global economy slowing due to the Russia-Ukraine war, rapid interest rate hikes, higher inflation and currency market volatility will only worsen the downward pressures. Small businesses confidence fell again in September, with both performance and the outlook declining at over 500 companies surveyed by Standard Chartered Plc. Covid and the restrictions to contain it still pose a substantial risk to the economy, with major cities across the country including Chengdu, Lhasa and Dalian locked down for parts of this month. A similar result is expected for the holiday week at the start of October, with travel limited and many areas trying to discourage people from returning to their hometowns, especially with the Communist Party congress in Beijing scheduled for mid-month.

Slackening Global Economy

Export demand has been a consistent and important driver for China’s economy for the past two-and-a-half years of the pandemic, but that support looks to be waning as concern about recession increases. The cost of shipping goods from China has slumped to the lowest level in more than two years as falling demand finally eases the congestion that had plagued global supply chains. While that will help bring down high inflation in the US and elsewhere by lowering shipping costs, the drop will hurt Chinese companies.

Car sales were one bright spot, with sales in the first two weeks of the month picking up. Auto demand has been boosted by subsidies and tax breaks for electric vehicles and have been an important force in propping up the economy. While cars were a key driver behind August’s pickup in both industrial output and retail sales, economists like Lu Ting, chief China economist at Nomura Holdings Inc. have warned the policy boost will start to wear off. Another positive sign was that the downturn in property sales in China’s four biggest cities may have started to wane. Sales in Beijing, Shanghai, Guangzhou and Shenzhen saw a slight uptick in the first weeks of September.

This could be an indication that government efforts to help the housing market are having an effect, although the price falls and frozen construction projects are more of an issue in smaller regional cities than they are in the largest Tier 1 areas. Activity of small businesses in the real-estate sector improved in September, according to Standard Chartered.

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Source: MoneyWeb

 

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