China is Too Weak to Save Global Growth if the US Economy Missteps
China is Too Weak to Save Global Growth if the US Economy Missteps
By:Ilya Spivak
China’s sickly economy leaves the US to carry global growth and defend against recession
- China’s inflation data still points to anemic demand, despite a limp uptick.
- Soggy results may be ahead for incoming trade and economic growth data.
- The US remains the single point of failure keeping global recession at bay.
Another soggy set of inflation figures from China suggests the world’s second-largest economy remains in the doldrums. The consumer price index (CPI) rose 0.1% year-on-year June, marking the first annualized increase in prices since January. Economists expected a flat result ahead of the release.
However, CPI fell 0.1% from the prior month, marking the second consecutive drop and the fourth month in negative territory so far this year. In level terms, CPI has idled in stubborn one-percent oscillation range for over two years, making the positive year-on-year reading appear more like mean reversion than the start of a rebound.
Inflation data paints a bleak picture of the economy in China
Producer price index (PPI) data pointed to deeper wholesale deflation. A drop of 3.6% year-on-year exceeded expectations for a fall of 3.2% and marked the fastest decline since July 2023. In terms of pacing, a monthly drop of 0.4% matched the preceding three months.
These figures hint that the burst of activity from frontrunning higher US tariffs at the start of the year is cooling, while domestic demand remains anemic. Twin sets of purchasing managers index (PMI) data released last week – an official one and a private-sector version from S&P Global – had economic activity growth hovering only a touch above standstill.
Incoming trade figures will mark the next chapter in the monthly economic data roundup. Recent trends here have been disappointing. Export growth has cooled for two consecutive months after a jump in March while imports have fallen every month so far this year.
The US stands alone between the global economy and recession
That makes for an ominous backdrop ahead of the release of China’s second-quarter Gross Domestic Product (GDP) numbers next week. Those figures have shown real GDP growth outpacing nominal expansion for eight consecutive quarters, implying two years of economy-wide deflation.
.png?format=pjpg&auto=webp&quality=50&width=1920&disable=upscale)
Put simply, this means that demand is woefully weak relative to supply, putting the whole of China’s economy on discount. That is a dismal state of affairs for global growth at large. China long with the US and the Eurozone account for 58% of worldwide GDP. With China limping along and Europe at near-standstill, the US is the only game in town.
That is a dangerous configuration at a time when US economic data seems to be cooling, the bond market reveals priced-in inflation expectations have been cooling since the beginning of the year, and Fed Funds futures point to more rate cuts than the central bank expects. If US growth buckles downwind, the global economy has no safety net.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts #Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
For live daily programming, market news and commentary, visit #tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.
Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.