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CITYAM.COM
GLOBAL FEAR OVER CHINA SLOWDOWN
THURSDAY 10 AUGUST 2023
ISSUE 4,028
FREE
DEFLATION COULD DERAIL WORLD ECONOMY FURTHER CHRIS DORRELL CHINA’s already “tortuous” recovery from the Covid-19 pandemic continued to stall as fresh data showed that the world’s second largest economy had fallen into deflation. Figures out yesterday morning showed that China’s consumer price index (CPI) turned negative for the first time since February 2021, with prices falling 0.3 per cent year-on-year. Producer prices meanwhile, which measures the price of goods at the factory gate, were down 4.4 per cent in July, falling for the tenth consecutive month. Deflation can be hugely damaging for an economy as it encourages consumers to delay spending, putting further downward pressure on prices. Runaway Chinese growth, which averaged over nine per cent between 1992 and 2022, has powered much of global
growth over the past few decades – particularly when growth has slowed in the West. A slowdown in China could hit Western firms, many of which have benefitted significantly from the expansion in consumer spending. Innes McFee, managing director at Oxford Economics, told City A.M. that the current bout of deflation is “altogether more worrying than previous Chinese deflationary episodes”. He highlighted weak consumer sentiment and a deteriorating property market as signs that deflation could prove more persistent than previous episodes, which were driven by excess supply. Yesterday’s figures reinforced an already bleak picture for the Chinese economy, which has struggled to resuscitate domestic demand after a series of draconian Covid-19 lockdowns. Earlier this week, figures showed that
exports contracted 14.5 per cent in July –the fastest rate of decline in three years – while imports dropped 12.4 per cent, reflecting the weakness of domestic demand. Some analysts have raised the prospect that China is entering a period of ‘lost growth’ similar to that of Japan in the 1990s when a debt-fuelled property bubble burst, forcing consumers to deleverage rather than spend. Policymakers may be forced into delivering a major stimulus package in order to boost demand, something they have shunned so far. While the news will worry policymakers in China, there are some reasons to be cheerful for the rest of the world. Falling prices in China, which produces a large proportion of the world’s goods, could ease inflationary pressure on economies around the world. Analysts at JP Morgan pointed out that the fall in Chinese exports mainly reflected lower prices rather than volume. “This could have facilitated the disinflation process in major trading partners,” they wrote.
FIREBALL SPOTTED ABOVE CITY Weather gives hospitality a boost JAMES SILVER THE SUN finally emerged above London yesterday, sending vitamin D-starved office workers to the green spaces and beer gardens
of the capital. Further excellent weather is expected today and into the weekend, giving pubs and restaurants a welcome boost after a miserable start to the school holidays.
Green boss: Labour ‘flip-flopping’ on policy won’t help UK energy goals NICHOLAS EARL A LEADING renewable energy boss has warned that Labour’s mixed messages on energy policy risk undermining the UK’s ability to deliver cleaner, affordable power. Labour have rolled back on a £28bn green spending pledge and
have left investors confused on North Sea energy policy, promising not to issue new licences but saying they wouldn’t reverse the current government’s potential approval of Rosebank, a potentially significant new oil field. Good Energy boss Nigel Pocklington (right) told City A.M. that the party’s lack of certainty
on green energy in particular would hit investment over the coming year. Labour are currently 22 points ahead of the Conservatives in the opinion polls, according to this week’s polling from YouGov. Pocklington said he believed investors will “need clarity from the person who
probably will be the next Prime Minister” rather than “flip-flopping on oil and gas commitments”. “It is unhelpful, isn’t it? I think most people making longterm investment
decisions or certainly long-term capital decisions will have that in the back of their minds.” Mood music that Labour would roll back green pledges further “won’t help the sort of investments that we’re championing,” he added. A spokesperson for Labour said it has set out plans to make Britain “a clean energy superpower”.
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