She said The Wall Street Journal Indications of slowing growth in China might bring “good news” to the rest of the world, as rising prices pressure spending and central banks raise interest rates to curb inflation.
The newspaper notes that the weak economic growth of the Chinese giant may affect the global economy as a whole, especially at a time when growth is slowing in other advanced economies, but the slowdown may also ease global inflationary pressures.
Logan Wright, director of China market research at the Rhodium Group, an economic and policy research firm in Washington, said the slowdown in China “might, globally, signal much smaller adjustments in interest rates in order to combat inflation, more which is currently being considered.
Growth in the world’s second-largest economy is slowing this year as the COVID-19 outbreak has led to mass shutdowns and business closures.
The government has announced a raft of stimulus policies, but many economists say Beijing’s 2022 growth target of around 5.5 percent is unlikely to be met as long as the threat of new shutdowns hangs over the economy.
The rise in food and commodity prices due to the Russian invasion of Ukraine has exacerbated the inflation caused by labor shortages and the volatile supply chains associated with the epidemic on consumer goods.
CME Group data indicates that investors expect the US Federal Reserve to raise the federal funds rate, its short-term interest rate target, to 3.5 percent by the end of the year from 1.6 percent currently.
The European Central Bank plans to raise interest rates this month for the first time in 10 years.
The Bank of England has raised its benchmark interest rate five times since December, with the Reserve Bank of India raising its policy rate for the second time in two months in June.
The Reserve Bank of Australia raised interest rates for the first time in 10 years in May and followed up with a second increase last month.
The easing of lockdown restrictions in Shanghai and other major cities in China in recent weeks has helped ease some of the pressures on the supply chain that have fueled global inflation.
As China’s export bottlenecks recede, there are signs that Western consumer demand is fading as inflation eats up household income and consumers shift spending from goods to services.
US retailers have warned of a financial hit due to overstocking of goods that consumers no longer want.
In the face of weak demand at home and abroad, manufacturers of goods made in China may cut prices, especially if they increase their stockpiles.
Opposite possibilities
The newspaper says that Beijing’s approach of shutting down the economy to counter the outbreak of Covid may also increase inflation.
She adds that this policy may create new bottlenecks in global supply chains.
It quoted Kenneth Rogoff, an economist at Harvard University, as saying that “if these problems worsen, then surely China will export inflation to the world.”
In an effort to revive growth, Chinese officials are planning an infrastructure modernization drive, which might raise global prices for iron ore, copper and other raw materials used in construction.
The report notes that if China’s recovery exceeds expectations, this in turn would boost demand for oil and coal.
However, many economists doubt that China will recover in the same way following facing the first outbreak of Covid in Wuhan, due to the decline in foreign demand for goods as well as weakness in China’s huge real estate market, as developers are reeling under the weight of heavy debts, while consumers reject high prices. .