China’s central bank unexpectedly slashed rates Monday after data showed economic activity slowed broadly in July – including consumer spending and factory output – sending oil prices down sharply and reigniting concerns of a global downturn.
The underwhelming performance signaled that the recovery is fizzling amid an array of economic challenges, including continuing fallout from the nation’s zero-COVID policy and real estate crisis.
But the specter of falling demand from the world’s second-largest economy alarmed energy markets.
Oil prices slid more than 3.1%, pushing West Texas Intermediate crude to $89 a barrel.
Much like the conflicting priorities that central bankers in other countries are facing, Chinese policymakers are closely tracking inflation and rising debt levels.
But a sputtering domestic economy appeared to take priority, prompting the People’s Bank of China to cut its medium-term lending rate to 2.75%, or 10 basis points, the first reduction since January.
The central bank “seems to have decided it now has a more pressing problem,” said Julian Evans-Pritchard, an economist who covers China for the economic research firm Capital Economics.
The July data shows lackluster economic momentum and a slowdown in credit growth, “which has been less responsive to policy easing than during previous economic downturns.”
The moves threw Wall Street into a sour mood before stocks recovered. By late afternoon, the Dow Jones industrial average gained more than 165 points or 0.5%.
The broader S&P 500 index rose 20 points or 0.5 percent, while the tech-heavy Nasdaq increased 98 points or 0.8%.
“The momentum of economic recovery has slowed,” government spokesman, Fu Linghui, said during a news conference, reported the Associated Press. “More efforts are needed to consolidate the foundation of economic recovery.”
For months, a large contingent of Chinese home buyers have refused to pay mortgages on properties they’ve bought but that developers have yet to finish, leading to sinking real estate values and frustrated consumers.
The boycotts, which are tied to more than 100 delayed projects, have raised concerns the property market could collapse, undermining the country’s financial system and dealing a blow to the global economy.
For more than a decade construction and real estate have helped fuel China’s astounding economic growth and bolstered an emerging middle class, underscoring the significance of the mortgage crisis and the damage the unraveling crisis could unleash.
But the slowdown is just one more reminder of the painful economic legacy of Beijing’s efforts to contain coronavirus infections.
Last year, China more than regained its pre-pandemic economic activity, leading major economies in the recovery from the public health crisis, despite limitations on travel and the lower efficacy rates of the country’s coronavirus vaccines.
But the rebound appears to have been short-lived.
Other nations that have pursued less stringent public health policies have largely reopened businesses, schools and government services.
But Chinese leaders have not wavered from their “zero” COVID approach of stamping out every outbreak through stringent measures that include frequent and sudden lockdowns, rounds of mass testing and constant uncertainty for the people living there.
The restrictions, while designed to prevent sickness, are taking a toll on the nation’s economy.
Figures for both retail sales and industrial production grew in July, compared to the same time last year, rising 2.7% and 3.8% respectively.
But the economic indicators missed market expectations of 5% and 4.6% growth, and both metrics slowed compared to the increases in June, according to the National Bureau of Statistics.
“The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector,” said Evans-Pritchard, in a research note Monday.
China’s latest bout of worrying economic data highlights the global interdependence of financial markets and the importance of the Chinese economy.
Concerns of a global downturn have already taken hold as the aftershocks of the Russian invasion of Ukraine continue to reverberate throughout global commodity markets, sending prices skyward for oil, wheat and fertilizer.
Beijing’s worrying economic outlook also underlines the uneven nature of the COVID-era recovery.
In recent days, following the release of an upbeat inflation report in the U.S. and new unemployment data indicating that employers added a stunning 528,000 jobs, fears of an American recession have subsided.
Local journalism is essential.
Give directly to The Spokesman-Review's Northwest Passages community forums series -- which helps to offset the costs of several reporter and editor positions at the newspaper -- by using the easy options below. Gifts processed in this system are not tax deductible, but are predominately used to help meet the local financial requirements needed to receive national matching-grant funds.
Subscribe now to get breaking news alerts in your email inbox
Get breaking news delivered to your inbox as it happens.