Daily Brief: China’s Recovery Goes From Bad To Worse

Daily Brief: China’s Recovery Goes From Bad To Worse

over 2 years ago3 mins

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Data out on Wednesday showed Chinese retail sales rose at their slowest pace in a year in August, as the country’s efforts to kill off Covid leave behind a sticky situation.

What does this mean?

China’s done a pretty solid job of keeping the pandemic in check, with the country quick to clamp down on any outbreaks as and when they spring up. But that efficiency’s come at a price: retail sales rose just 2.5% last month compared to the year before – well below the expected 7%. That’s got analysts worried that the country’s overall economic recovery is at risk, especially since any more outbreaks are bound to interrupt consumer spending and supply chains all over again. Investment bank Goldman Sachs is so worried, in fact, that it’s lowered its forecasts for the country’s economic growth from 5.8% to 2.3% this quarter.

Retail sales
Source: SCMP

Why should I care?

For markets: A change of tactics might be in order.

China’s resisted relying on broad-brush support packages like other developed economies, instead choosing to focus on targeted programs for small businesses. But economists think this recent data might encourage its government to try a different approach: cutting the amount of cash banks are required to hold in reserve in an effort to boost lending and, in turn, spending. It might help increase investment in Chinese stocks too, which would be good news for the country’s ailing stock market: it’s fallen 8% this year.

The bigger picture: So much for “safe as houses”.

China’s property market has been having a tough time of it too: the government’s been rolling out restrictions across the sector, making it a lot harder for developers and homebuyers to take out loans. That might be why home sales fell 20% in August compared to the year before – the biggest drop since the pandemic hit last year.

Deepening slowdown

Keep reading for our next story...

UK Inflation Hit A Nine-Year High

UK image

Fresh data out on Wednesday showed UK inflation hit a nine-year high in August, so the Bank of England (BoE) might need to shake itself out of its slumber earlier than it wants to.

What does this mean?

Consumer prices in the UK have been rising fast ever since the government eased pandemic restrictions back in April, climbing 2.7% in the last six months alone. And that seems to have come to a head last month: prices were 3.2% higher than they were the same time last year.

UK inflation

This isn’t great news for the BoE, which has maintained for a while that the current spike in inflation is only fleeting. Then again, the central bank was considering raising interest rates anyway – a move that would discourage borrowing and cool down spending. So this data – along with Tuesday’s strong jobs report – won’t just vindicate that decision: it might encourage the BoE to spring into action even sooner than expected.

Why should I care?

The bigger picture: It’s not just consumers...

UK energy prices are surging too – so quickly that two British suppliers went out of business earlier this week. See, energy suppliers tend to lock in the price they pay for energy ahead of time, but Utility Point and People’s Energy hadn’t. Their customers, meanwhile, had locked in their own prices via fixed yearly tariffs, which means the companies were selling energy on for a much lower price than they were paying for it.

Gas gains

Zooming out: And it’s not just in the UK…

Energy prices are surging to record highs all across Europe, and governments are starting to take note: Greece and Spain are handing out subsidies to help their people afford rising energy bills. And since analysts are expecting bills to rise by 20% across Europe, it mightn’t be long before other governments follow suit.

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