China economic woes may offer a silver lining to global markets

economictimes.indiatimes.com:

Falling prices in the world’s second-largest economy are likely to translate into lower costs across the globe given China’s status as the factory of the world, according to EdenTree Investment Management and Gama Asset Management SA. Easing inflation will allow central banks to refrain from further interest-rate hikes, and possibly pivot to an easing, to shore up slowing growth.

The prospect of slower global price pressures may be one of the few upsides of China’s descent into deflation as the economy struggles to regain its footing after a post-Covid bounce faded. Inflation is likely to remain muted as a property slump and troubles in the shadow banking industry curb spending and investments by both consumers and companies.

“A weak China might bring forward the peak in monetary tightening,” said Christopher Hiorns, portfolio manager at EdenTree Investment. “It would also reduce demand for commodities which would reduce inflation pressures and may allow Western economies to run ‘hotter.’” Inflation in the US and other countries has quickened in the years after the pandemic, cutting consumers’ purchasing power and forcing central banks to jack up interest rates.

China’s predicament is different, owing to a variety of circumstances including a prolonged property slump that has hurt confidence and dented spending. The price of Chinese goods at US docks has dropped every month in 2023 “The positive angle is that China’s slight deflation and slow growth will dampen inflation in the rest of the world even faster,” said Rajeev De Mello, a global macro portfolio manager at Gama Asset Management.

However, a slowing China will also lead to a slowdown in Asia and Europe, he added. De Mello told Bloomberg Television on Tuesday