China’s economic troubles deepen as consumer prices experience the sharpest decline in three years, highlighting growing deflationary pressures amid weak domestic demand. The consumer price index (CPI) dropped 0.5% year-on-year and month-on-month in November, exceeding forecasts and marking the steepest year-on-year decline since November 2020.
Adding to the concerns are recent events since June 2023, including Evergrande’s Chapter 15 bankruptcy filing, the announcement of the largest tax cuts since 2008, interest rate reductions on $6 trillion of mortgages, unexpected rate cuts, the onset of a bank run at Bank of Cangzhou, the third deposit rate cut by banks this year, and plans for another stimulus package by the government.
This series of events has contributed to a volatile economic environment, prompting calls for additional policy support to bolster growth. Moody’s downgrade of China’s credit rating further dampened investor confidence, with the Shanghai Composite experiencing a nearly 2% decline. As the nation navigates these challenges, the outlook for 2024 remains uncertain, signaling a year of heightened economic volatility.
Sources:
Reuters: China’s consumer prices fall fastest in 3 years, factory-gate deflation deepens
All the key data points continue to suggest that China's economy is weakening.
Moody's cut on its outlook for China is just the latest headwind.
Odds of a recession are quickly rising in the current backdrop.
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— The Kobeissi Letter (@KobeissiLetter) December 9, 2023