OPINION
Market Rating Before FOMC MeetingJan 31
Chinese Contribution to Global Investor Stress
Fixed capital investments on an annual basis in this period did not meet expectations of a 7.0 percent increase by 6.8 percent, while the unemployment rate also rose to its highest level since March 2020 at 6.1 percent.
In a statement, NBS warned that China's exports are facing some pressure as the global economy slows, saying that a recovery in consumption and economic activity are expected to accelerate as of May. "The Chinese economy is expected to maintain a relatively solid trend in Q2," NBS added.
China has decided to close its largest city, Shanghai, on March 28 after the Covid-19 outbreak began more than two years ago. Activities such as public transportation and factories were largely shut down as part of the closure, which began in the eastern part of the city of more than 25 million people. Later, some of the restrictions were expanded as cases spread to surrounding states and the capital, Beijing.
By May, the wave of measures grew and contracted in varying degrees, but supply chain delays and bottlenecks due to the closure of the port of Shanghai, Asia's main trading center, directly affected the performance of the industry, which is the locomotive of the Chinese economy. However, due to the slowdown in household consumption, the sharpest decline in retail sales in 2 years was observed. During this period, fixed-asset investment remained buoyant, while demand for labor declined significantly.
The sharp slowdown in economic activity in China, which houses more than 27 percent of the world's manufacturing industry alone, raises concerns that it will exacerbate the supply bottlenecks that have emerged from the current pandemic. It is estimated that supply chain disruptions will be added to the commodity pressure created by the Russia-Ukraine war on global inflation.
As of today, although the closure precautions implemented in Shanghai will be gradually relaxed, its contribution to pricing seems to be on the agenda for a while. As a matter of fact, the expectation that the central banks will increase the rate of monetary tightening against inflationary pressures is the main determinant of the high outlook experienced in today's investor stress.
