We have updated our Privacy Policy and Terms of Use for Eurasia Group and its affiliates, including GZERO Media, to clarify the types of data we collect, how we collect it, how we use data and with whom we share data. By using our website you consent to our Terms and Conditions and Privacy Policy, including the transfer of your personal data to the United States from your country of residence, and our use of cookies described in our Cookie Policy.
{{ subpage.title }}
Customers shop at a supermarket in Qingzhou, Shandong province, China.
China waiting for Mr. Stimulus
Chinese economic growth slowed down in May, with both industrial output and retail sales coming in below expectations. Does this mean the end of the economic rebound that China has enjoyed since ditching its draconian zero-COVID restrictions? Not so fast.
Pent-up spending on goods and travel will still help China hit its deliberately conservative 5% GDP growth target this year, says Eurasia Group analyst Lauren Gloudeman.
Still, China's central bank cut several policy rates in anticipation of the weaker data. The government also announced a bunch of pro-biz gimmicks to boost economic growth and encourage consumption — but it didn’t unveil the major stimulus plan many are waiting for.
Part of the problem is that China wasted vast sums of state funds for testing and quarantines during zero COVID. And that means Beijing has less cash to spare on stimulus amid mounting economic woes — young people can't find jobs, local governments and the property sector are drowning in debt, and private investment is drying up.
What’s more, hitting his growth target is the least of Xi Jinping’s economic woes. He knows that he needs to do something big fast to give China's economy a much-needed boost of confidence by getting Chinese people to spend again. The longer Xi waits, the higher the risk of economic stagnation and financial crisis.
Federal Reserve Chairman Jerome Powell arrives to testify before the US Senate.
What We're Watching: US Fed's next move, China's stimulus, Chile's president needs a win
All eyes on Powell at Jackson Hole
Updated Aug. 26:Heard of Jackson Hole, Wyoming? That's where all the economic bigwigs from around the world are gathering for an annual three-day event focused on the state of the global economy. In a stark departure from his position throughout much of the pandemic that inflation would be “transitory,” US Federal Reserve Chair Jerome Powell said in a keynote address Friday that there would be “some pain” for households and businesses in the months ahead, noting that inflation continues to soar. Powell also said it’s likely that we’ll see a “softening of labor market conditions,” suggesting that record low unemployment – the current silver lining of the economy – could tick upwards. Indeed, the Fed chair sought to defend his track record to economists and central bankers, many of whom have been critical of him for waiting too long to raise interest rates. Many observers took Powell’s address as a sign that the Fed will continue to tighten monetary policy in the months ahead as inflation tops 8% over the previous year. What's more, some economists say the Fed could soon raise rates as high as 4% (its current target rate is 2.25-2.5%), sparking fears of a sharp recession. Still, inflation is mild in the US compared to parts of Europe, particularly the UK, where inflation is estimated to hit a whopping 18.6% early next year.
China grabbing at stimulus straws
China has announced an additional $44 billion worth of stimulus spending on infrastructure to breathe some life into its battered economy. Struggling businesses certainly need help: the real estate sector is drowning in debt, factories are shutting down due to a heat wave and an energy crunch, and rural banks are failing. But more importantly, zero-COVID is hurting both productivity and consumer confidence in a rebound anytime soon — and the government has no plans for relaxing the policy in the near term. It's an open secret that Xi Jinping knows annual GDP growth will fall far short of Beijing's 5.5% target for 2022. In fact, it'll probably end up at around 3% — a dismal performance for the world's second-largest economy. The timing could not be worse for Xi, who's getting ready to secure a norm-defying third term as secretary-general of the ruling Communist Party at the much-anticipated 20th Party Congress this fall. China's leaders are a bit distracted by Taiwan these days, but if they continue to drop the ball on the economy, the CCP’s marriage of convenience to the Chinese people since 1949 might be tested.