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Deflation, troubling exports add to China’s economic malaise

  • Published
    29th Aug, 2023

Context:

Market observers had predicted that the global economy would experience a slowdown in 2023. Also the forecasts of the International Monetary Fund (IMF) in January 2023 showed that global growth would be 2.9% against 3.4% in 2022.

Economic outlook for 2023

  • The growth Projections: For advanced economies was 1%, slowing down from 2.7% during the previous year, and 1.4% for the USA against 2% in 2022.
  • China’s growth after COVID: China has decided to discontinue its zero-COVID policy earlier in the year, was expected to grow at 5.5% and was to benefit from releasing “pent-up” demands.
  • Shift in Forecasts: Recent IMF projections show advanced economies growing faster, US at 2%, while China faces deflationary pressures for sub-5% growth.

China’s Economy

  • China's Economic Strategy: Under Deng Xiaoping, China effectively used global markets and trade to boost its economy, becoming a leader in leveraging international demand.
  • Shift in Crisis: After the 2008 global recession, China shifted focus to its domestic economy, launching a stimulus package to reduce reliance on global markets.
  • Debt Concerns: China's local governments used financing vehicles to fund infrastructure projects, but post-pandemic, debt surged due to revenue drops and tax cuts.

Concerns for global Economy

  • China's Export Decline: China's exports have dropped, notably to key markets like the US, EU, and ASEAN, amid global trade sluggishness.
  • Global Economic Struggles: Major economies, including the US and EU, face trade challenges, dimming China's prospects for external solutions.
  • Contrasting Predictions: While some forecast improved global growth, China's economic challenges suggest a less optimistic outlook.
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