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False start for the Chinese economy

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Status: 01.08.2022 11:14 a.m.

The Chinese economy is faltering, containment measures are taking effect. This could also have consequences for the German economy, as China is Germany’s most important trading partner.

The Chinese economy got off to a bad start in the second half. The manufacturing purchasing managers’ index unexpectedly fell 1.3 points to 50.4 points in July. This is the result of the Caixin/Markit survey of predominantly exporting private companies published today.

The barometer is just above the 50 mark, from which point it signals growth. Economists polled by Reuters had expected only a slight drop to 51.5 points. The official Purchasing Managers’ Index, which mainly covers large state-owned industrial companies, had surprisingly fallen 1.2 to 49.0 points.

Will the growth objective be achieved?

Experts interpret the latest data as a warning: “The country was already facing a difficult task – to put it mildly – in terms of its growth target for this year. And the fact that manufacturing activity is slowing again n ‘doesn’t bode well,’ said Craig Erlam, market researcher at brokerage Oanda, adding that the data shows the economy is struggling to regain full strength.

“Hope that the industry will recover after the end of the drastic containment measures which closed down important economic regions in April has been dampened by the data”, acknowledges Commerzbank economist Bernd Weidensteiner. On the one hand, global economic weakness is weighing on the global export champion. On the other hand, the national economy is also in decline. “Because the government has only recently reaffirmed its difficult course on Corona,” Weidensteiner said. Therefore, there is always a risk of production disruptions due to containment measures.

Worry about the German economy too

This could also have consequences for the German economy. After all, China is by far the most important trading partner. In 2021, goods worth 245 billion euros were traded between the two countries. There has long been reason to worry about the German economy, as growth there came to a complete halt in the spring. In the second quarter, gross domestic product (GDP) was unchanged from the first three months of this year.

Above all, external factors such as disrupted supply chains, rising prices and the war in Ukraine have had a clear impact on economic development, experts from the Federal Statistical Office explained.

Real estate market crisis

In addition to the consequences of the confinements, a real estate crisis is fueling Chinese economic concerns. According to a survey by China Index Academy, one of the country’s largest independent real estate research firms, home sales by area in 17 surveyed cities fell by a third in July from the previous month. As a result, the real estate sector threatens to fail as an engine of growth. “The Chinese real estate sector is in the throes of a depression,” say experts from Société Générale.

Faced with headwinds, leading politicians have already signaled that the government may backtrack on its growth target of around 5.5% for this year. In the second quarter, the gross domestic product increased by only 0.4% compared to the same period of the previous year. Taking into account the shock of the outbreak of the virus pandemic in early 2020, this is the weakest growth since data collection began in 1992. Economists expect authorities Beijing are now trying to further stimulate the economy.

“Everyone is worried about stagnation,” said Nie Wen, a Shanghai-based economist at the Hwabao Trust. “In the second half of the year, it will be more important economically to accelerate the recovery in consumption.”

Source www.tagesschau.de

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