China’s slowdown poses threat to global recovery
China’s V-shaped economic rebound is fading faster than expected, catching analysts off guard and posing a new headwind for the already uneven global recovery.
That’s the emerging consensus as falling property prices, nervous consumers and a cooling manufacturing sector all point to slowing momentum in the world’s No. 2 economy. A surprisingly restrained policy response from Beijing has dampened hopes for more support, at least for now.
To put the turnaround in context, only months ago economists had banked on China cruising past an 8% growth rate for 2021 and carrying strong momentum into 2022. While this year’s expansion may yet hit the forecast range, the slowdown means Goldman Sachs Group Inc. and others warn China could see sub-5% growth next year.
For the world economy, the development threatens to strip away a key ballast of support. China’s hunger for raw materials and its quick reopening after the initial pandemic wave helped to fuel the global rebound too.
Data on Monday is expected to confirm the slowdown, with numbers for retail sales, fixed asset investment and industrial production all due.
An energy crunch over September and October coupled with elevated cost pressures is squeezing corporate profits and hitting factory output. Economists expect China’s industrial production to expand at the slowest pace since early 2020, at 3%. A leading sub-index in China’s PMI data that measures output also pointed to further softness, which was at its weakest since February 2020.
Falling real-estate prices and credit-market turmoil for heavily indebted developers means fixed asset investment in the first 10 months of the year is expected to have slowed to 6.2% from 7.3% previously.
Although policy makers have started fine-tuning some policies and state media reports are fanning speculation of an easing in curbs, economists warn that the downturn in real estate -- which accounts for up to 25% of output -- could hurt the wider recovery.
China’s aggressive approach to controlling outbreaks of Covid-19 is weighing on consumers, especially for catering and off-line retail sales. Consumer confidence remains weak, and analysts expect retail sales growth to slow 3.8% in the month.
Meanwhile, in the euro zone, European Central Bank President Christine Lagarde will appear publicly at half a dozen events, providing multiple opportunities to guide investors before an all-important decision in December on the future of stimulus. Most prominent in her diary will be two hours of testimony to the European Parliament on Monday.
Central banks elsewhere will command attention as well. On Tuesday in Hungary, monetary officials may accelerate rate hikes after inflation surged more than forecast and regional counterparts embarked on aggressive tightening.
Iceland, the first country in Western Europe to raise interest rates since the pandemic struck, could deliver another hike on Wednesday. The same day, Norway’s central bank governor, Oystein Olsen, will speak on the economy just weeks before a decision that may also feature a rate increase.
©2021 Bloomberg L.P.