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One Chinese economic indicator after another is disappointing. The evolution of producer prices is also anything but satisfactory. These fell by 4.6 percent.

The Chinese economy was expected to recover sharply after unloading the zerocovid policy. But the hoped-for economic growth is failing to materialize, with domestic demand unable to offset declining global demand. And China must fight deflation, while we have been fighting inflation for more than a year.

In the news: China's economy is not doing well.

  • Producer prices fell 4.6 percent in May, the biggest loss in 7 years.
  • Inflation - the evolution of consumer prices - was just 0.2 percent (annualized), down from 0.1 percent in April.
  • On a monthly basis, prices actually fell 0.2 percent. So the deflation monster is rearing its head.

The details: Weak global demand and falling commodity prices.

  • We can add those bad numbers to a long list of disappointing economic indicators: Chinese exports plunged 5 percent in May, indicating an overall cooling of the economy.
  • Low commodity prices also put pressure on producer prices. Zhiwei Zhang, economist at Pinpoint Asset Management, confirmed in an interview with that the Chinese economy is cooling.

The gist: China's hoped-for economic recovery is delayed.

  • Domestic demand isn't doing so well either. Imports fell 4.5 percent (year-on-year) in May.
    • Other figures showed that retail sales, manufacturing, approved loans and real estate purchases all fell in April compared to March.
  • To revitalize its economy and fight deflation, China is doing the exact opposite of what Western central banks are doing: the monetary institution is asking banks to cut interest rates, especially , to prevent the Chinese from hoarding all their money.
  • One bright spot: things can hardly get worse. "We think from an economic standpoint, from a recovery standpoint, and from a geopolitical standpoint, it can't get much worse than where we are now," said Andrew Maynard of China Renaissance.

The bottom line: Chinese deflation and, more generally, the drop in commodity prices are a good thing for our inflation. Supply chain issues are also being resolved.

  • But the soft landing, where we can temper inflation without falling into a deep recession, is in great danger. We counted on the Chinese recovery to offset weak growth in Europe and the United States. In fact, the euro zone has officially .
  • If all economies collapse simultaneously, we are heading for a global recession. Like a canary in the coal mine, , despite OPEC's desperate attempts to push them up.

(ns)

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