Published on 9 November, 2023
In the latest economic report from China, the country’s economy has slipped back into deflation, facing challenges amidst a property sector crisis and the easing of pandemic controls. According to data from the National Bureau of Statistics, the consumer price index fell 0.2% year on year in October, slightly worse than the 0.1% decline forecasted by analysts. Notably, falling pork prices played a significant role, with livestock and meat prices dropping 17.9%, driven by a sharp 30.1% decline in pork prices.
This economic downturn comes as China grapples with a property market crisis and the aftermath of pandemic control measures being lifted. Producer prices have fallen for the 13th consecutive month, declining 2.6% year on year, exacerbating concerns about the country’s economic trajectory.
Despite these challenges, the market reaction in China remained relatively muted, with the CSI 300 index showing little change, and the renminbi weakening only 0.1% against the dollar after the data release. Economists are divided on the prospects of China achieving its official gross domestic product growth target of 5% for the year, with mixed signals from recent economic indicators.
The International Monetary Fund (IMF) recently upgraded its forecast for China’s GDP growth to 5.4%, citing stronger support from policymakers who have been implementing measures to stabilize the real estate market.
Analysts attribute the soft inflation figures to low consumer confidence, and falling pork prices are seen as exacerbating this trend. However, some economists, such as Rob Carnell from ING, argue against labeling the situation as deflation, emphasizing it as a result of supply excess rather than a collapse in demand.
Looking ahead, concerns about China’s economic recovery persist, with exports declining for the sixth consecutive month and manufacturing activity contracting in October. While there are positive signs in the form of year-on-year expansion in imports, economists stress the need for the Chinese government to stimulate domestic consumption and boost overall demand in the economy.
Measures, such as a Rmb1tn ($137bn) bond announced for local government disaster relief and flood controls, are seen as steps aimed at supporting growth in the coming year. However, challenges for GDP growth in 2023 loom unless the recovery gains more traction, according to analysts.
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