Growth slowed in China, the world’s second-largest economy, adding to fears of a broader global recession.
China reported that economic activity decelerated across the board last month, causing central bankers in Beijing to slash interest rates unexpectedly in an effort to prop up the economy. It was the first time that the country cut rates since January and shows that China’s strict COVID-19 mitigation policies and worsening real estate slump are cutting into the economy.
Chinese industrial production slowed to 3.8% in the 12 months ending in July, below forecast expectations of 4.6% growth, according to the country’s National Bureau of Statistics. Additionally, retail sales growth in China was nearly half of what forecasters anticipated.
“The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector,” said Julian Evans-Pritchard, senior China economist at Capital Economics, according to Reuters.
NEWEST REPORTS SHOW INFLATION MAY HAVE PEAKED, BUT HIGH PRICES LIKELY TO STICK
Evans-Pritchard said that while the People’s Bank of China is increasing its support for the economy, it “probably won’t be sufficient to prevent further economic weakness.”
The news comes as other major economies worldwide are feeling the pain from too-high inflation and the global fallout from the Russian war in Ukraine.
Inflation has been soaring in Western countries, causing central banks to begin aggressively tightening their monetary policies.
Stateside, inflation peaked in June — the highest rate since the Great Inflation of the 1970s and early 1980s. It has since declined to a still-explosive 8.5%, as gauged by the consumer price index.
In July, following a two-day meeting, the Federal Reserve announced that it would increase its interest rate target by a massive three-quarters of a percentage point. That follows another 75 basis point hike in June. The Fed usually hikes rates by just a quarter of a percentage point, so the back-to-back increases were equivalent to six standard rate hikes in just two months.
That action is designed to slow inflation by dampening spending, a prospect that many economists expect will cause the economy to fall into a recession.
Some already think the U.S. economy is in a recession. U.S. GDP has declined in the past two consecutive quarters, which many economists take as a sign of recessionary conditions.
Others have pushed back on the notion that the United States is now in a recession and pointed out that the labor market is still strong and the unemployment rate is at historically low levels. Still, the two quarters of decline are a worrying sign, particularly considering the Fed is on track for even more big rate hikes.
Things in Europe are also not going too well. Inflation in the United Kingdom and the European Union as a whole is even higher than in the U.S., and the continent is grappling with a devastating energy crisis because of the Russian war in Ukraine.
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Consumer confidence continued to fall in Western Europe last month, with nearly all European countries seeing declines, according to Morning Consult’s Index of Consumer Sentiment, which was released on Monday.
“The pessimism of European consumers is striking, even as sentiment dropped broadly across 31 of the 44 countries we survey each day,” said John Leer, chief economist at Morning Consult. “The ongoing economic slowdown in Germany and the U.K. threatens potential spillover across the continent, heightening the risk of recession.”
