Daily Brief: The World’s Factory Is Out Of Power

Daily Brief: The World’s Factory Is Out Of Power

over 1 year ago3 mins

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Data out this week showed manufacturing activity in China shrank last month.

What does this mean?

China’s reputation as “the world’s factory” is down to the sheer power of its manufacturing industry, which carries so much heft that it typically gives an insight into the economy as a whole. So it’s not promising, then, that a cacophony of issues meant the sector slacked last month.

For one, an extreme heatwave caused historic droughts harsh enough to dry up rivers that feed hydroelectric plants. Even the Yangtze – China’s most important trade waterway – withered to its lowest level on record. Not only has that disrupted shipping routes, but it’s also forced provinces to cut factories’ electricity supply to manage power shortages. And for another, the country’s relentless commitment to its zero-Covid policy sent demand for products slipping, leaving businesses twiddling their thumbs. That, then, might be why a survey taken by business managers showed manufacturing activity actually shrank in August for the first time since May.

China manufacturing

Why should I care?

Zooming in: Here we go again.

The bad news just keeps coming, with reports on Thursday revealing the city of Chengdu – a tech and carmaking hub – will lock down 21 million residents amid another outbreak, which will only stunt manufacturing more. Then again, there mightn’t be much to miss: an export-oriented survey signaled that foreign demand – a key pillar of support for China’s economy during the pandemic – might be drying up.

The bigger picture: Is this… climate change?

This could all be a blessing in disguise for heatwave-stricken Mother Nature: data out on Thursday showed China’s carbon emissions fell almost 8% this April through June – the last period of major lockdowns – versus the same time last year, the steepest drop in a decade. But those slowdowns at hydropower plants might be a sticking point, with some analysts expecting China to plug the gap with carbon-pumping coal – dashing the hopes of another greener season.

China emissions

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Talk About The Cost Of Living

UK housing image

Data out on Thursday showed UK house prices climbed again last month, but there are some signs of a slowdown.

What does this mean?

The cost of living is putting Brits off the smallest of purchases, so mix in unattractive spiraling mortgage rates and it’s no wonder that UK house prices have… risen. Yup, risen: a lack of supply is almost single-handedly propping up the market, with data from the Royal Institution of Chartered Surveyors showing the average estate agent branch covered just 35 properties in July – the lowest since records began. Would-be buyers then had little choice but to outbid rivals for their dream home, which helped push house prices up 10% in August from the year before, overshooting economists’ 8.9% prediction. Mind you, that mightn’t be a huge shock: that’s the tenth straight month of double-digit growth, and brings the average house price to a fresh high of £273,751 ($316,000) – a whole £50,000 ($58,000) higher than just two years ago.

UK house prices

Why should I care?

The bigger picture: Every little helps.

Still, that was a slowdown from the previous month’s 11% uptick. And that might continue: Bank of England data out this week showed the number of new mortgages approved sunk below pre-pandemic levels, plus expected rate rises will only keep hopeful homebuyers firmly off the ladder. And that – along with more anticipated supply this fall – might be why some estate agents expect price rises to slow even more going forward.

For you personally: Mark your calendars.

Oxford Economics went one step further, predicting that UK house prices will actually fall from the middle of next year. Still, that doesn’t mean wannabe buyers will be able to put down deposits: they’ll have to slog through high inflation – which Goldman Sachs believes could hit 22% next year – to get there first, and it’s predicted the best two-year fixed-rate mortgage around will sit at 5.5% by then – almost double what you’ll find today.

UK house price forecast
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