The Red Dragon Dragged Its Heels Last Quarter

The Red Dragon Dragged Its Heels Last Quarter
Daniel Johnston

8 months ago2 mins

What’s going on here?

Data out on Monday confirmed that China’s economy lost its magic last quarter.

What does this mean?

After kicking off the year with a bang, the world’s second-biggest economy started to feel the burn last quarter. And there seem to be three main culprits: first off, consumer confidence has taken a hit, with savings rates stubbornly high, suggesting folk are wary of splashing out. Secondly, the property sector, a hefty chunk of the economy, is still in a slump. And lastly, the West’s economic troubles have thrown a wet blanket on foreign demand for goods, dealing a blow to Chinese exports.

China exports

And sure, the economy still managed to grow by 0.8% from quarter to quarter – above the 0.5% estimates, but slower than the previous quarter. Plus the headline figure of a 6.3% year-on-year uptick is far less impressive when you remember that’s compared to back when major cities like Shanghai were in lockdown.

China GDP

Why should I care?

Zooming in: Bring out the big guns.

This data’s not a shocker given the weak data out of China lately, but it does make clear that the country’s recovery is losing steam. And a few bright spots, like the better-than-expected jump in industrial production, won’t amount to much unless the government can boost spending and stave off the threat of deflation. So while there are rumblings of incoming measures to boost the economy, the real question is whether they’ll pack enough punch to reverse the slump and prevent 2023 from becoming a year to forget for China.

The bigger picture: Bad news, world.

China’s economy plays a starring role on the world stage, with the IMF predicting it'll be the top contributor to global growth over the next five years. But if China’s economy fails to bounce back, it could throw a wrench in these projections – especially given that global growth is already expected to be slower than pre-pandemic levels this year.

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