Sudden interest rate cuts: – Telling you the economy is in very bad shape

Sudden interest rate cuts: - Telling you the economy is in very bad shape

China, which is the second largest economy in the world – after the United States – has already provided economic statistics for the second quarter of the month. Annually adjusted growth ended at just 0.4 percent – the weakest since the start of the pandemic.

Poor development in China

Before the markets opened in China, and before the release of economic reports for July, there was a surprise announcement by the central bank of a ten basis point rate cut.

Interest rates are already low in China due to lack of demand for loans. “The rate cut tells you the economy is in really bad shape,” Natixis macroeconomist Trin Nguyen says in a Twitter comment.

A little less than an hour later came the economic activity statistics. Industrial production rose 3.8 percent in July — slightly less than in June, when it was 3.9 percent. A growth of 4.6 percent is expected.

Retail trade increased by 2.7 percent, compared to 4 percent in the previous month. Five percent growth was expected.

China’s Statistical Office wrote in a commentary on economic statistics that it sees an increased risk of stagflation in the global economy.

“All 32 analysts polled by Reuters, including us, expected interest rates to remain unchanged,” chief China economist Julian Evans-Pritchard of Capital Economics wrote in a note.

Chinese cities are still asking residents to test themselves against corona infection regularly. The Shanghai Financial City, which has been closed throughout the spring, has extended the requirement for weekly testing and registration on a separate application until the end of September on the weekend.

On Saturday, one new case of infection was recorded in the capital, which has a population of nearly 30 million. All nurseries and schools will reopen from September 1. Every day a daily test is required for all students, teachers and staff before they leave the school grounds.

default increase

Line problems in China. Over the summer, Chinese homebuyers were behind foreclosures against real estate companies that did not complete their homes on time. This spread to other parts of the economy.

So far this year, there have been more than twice as many defaults by Chinese companies as there were at the same time last year, according to Shanghai-based Wind Information, cited by Nikkei Weekly.

S&P Global Ratings warns that 20% of Chinese property developers are at risk of bankruptcy, which is a step closer to bankruptcy. Property sales fell 27 percent in the first half of the year in the 100 largest cities. The decline continued throughout the summer.

Loans to the Chinese real estate sector account for 26 percent of all loans outstanding in China. That’s higher than it was in Japan before the property bubble burst more than 30 years ago.

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according to Report From Harvard University professor Kenneth Rogoff. At the end of the 1990s, the percentage was less than ten percent. In Europe, the United States, and Japan, the proportion is less than 20 percent.

Capital Economics is skeptical about whether the rate cut will be enough for China to meet its target of about five per cent growth for 2022.

“The current weak loan demand is partly structural, reflecting weak confidence in the real estate market and uncertainty caused by recurring disruptions from China’s zero-contagion strategy. These are problems that cannot be easily resolved by monetary policy,” wrote Chief Economist Evans-Pritchard.(Conditions)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using the links that lead directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.

Dalila Awolowo

Dalila Awolowo

"Explorer. Unapologetic entrepreneur. Alcohol fanatic. Certified writer. Wannabe tv evangelist. Twitter fanatic. Student. Web scholar. Travel buff."

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