The prolonged end to the Chinese COVID induced lock down was heavily anticipated across the world, with the economy expected to resume back to pre-pandemic growth prospects. However, following the insolvency of a major property developer, the countries real estate bubble has burst. This has set off a chain of developer defaults and business losses, leading to a housing led economic downturn and the economy being compared to characteristics of Japan’s “Lost Decade” of sluggish growth and inflation. In particular the Chinese economy has experienced:
- Disinflation in July 2023 before a modest increase to 0.1% in August
- Liquidity crisis weighing on manufacturing and exports
- Low amounts of monetary stimulus
- High unemployment, low consumer confidence and falling wages
- Declining population
While the reopening of China has somewhat eased supply chain issues, its sluggish growth is likely to suppress inflation and commodity demand in Australia. While the market expects the RBA to increase rates one more time by May next year, a prolonged period of suppressed growth in China is likely to have a disinflationary effect and counterbalance the strong growth encountered domestically.
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