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China’s economic recovery faces risks from global trade slump

Tan KW
Publish date: Mon, 27 Mar 2023, 02:26 PM
Tan KW
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China’s economic recovery was mixed in March with business confidence and the housing market improving but the global outlook darkening amid heightened financial market turmoil.

Bloomberg’s latest aggregate index of eight early indicators showed growth momentum steadied from February, with the overall gauge remaining at 4. Falling car sales and weak global demand were the main drags on the index.

China’s reopening after three years of strict pandemic rules has boosted confidence, with consumers once again filling up restaurants and subways, and businesses returning to normal. The housing market slump, which has been a major drag on the economy, is also showing signs of bottoming out as home sales and prices rebounded recently.

The global environment remains uncertain, though, with central banks continuing to hike interest rates to curb inflation and a banking crisis fuelling investor concern. A weakening global economy means a further slump in demand for Chinese exports, which have already plummeted in recent months.  

Economists are betting the recovery in consumer spending will underpin China’s growth this year, which is expected to now reach 5.3% this year, according to the latest survey by Bloomberg, up from a previous forecast of 5.2%.

Growth in the second quarter is forecast to accelerate to 7.3%, which would be the fastest pace in two years, according to the survey, largely due to a lower base of comparison from last year.

In March, confidence among small businesses climbed to the highest level since July 2021, according to a survey from Standard Chartered plc. In the services sector, sentiment among real estate, financial and IT businesses improved sharply, the bank said.

For catering and accommodation businesses, confidence fell after a post-reopening spending boom eased.

Several indicators pointed to weakness in the economy. Early trade data from South Korea - a barometer for global demand - showed a deepening slump in exports, with shipments plunging 23.1% on average in the first 20 days of March from a year earlier.  

China’s vehicle sales continued to contract in March from a year earlier, according to weekly data from the China Passenger Car Association.

Steel inventories also steadily increased in March, an ominous sign for demand. That’s even as output volumes increase to meet construction demand before a likely government-mandated cut in nationwide production of the alloy for environmental reasons.

Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.

 


  - Bloomberg

 

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