Economic slowdown, inflation, stagflation, energy crisis - such phrases seem to appear more and more often in market commentaries. Fears expressed in this way may be justified by the latest data from the Chinese economy.
China's economy expanded at an annualized rate of 4.9 percent in the penultimate quarter of 2021, the Chinese statistics bureau reported today. Meanwhile, the Q2 growth rate was 7.9 percent, and the market consensus was for Q3 GDP growth of 5.2 percent.
What could be holding back economic growth?
The main reason for the slowdown seems to be a combination of several factors: the real estate crisis caused by the insolvency of China's second-largest developer, the energy crisis and power shortages and price hikes, and finally component shortages and disruptions in supply chains.
China's GDP contraction data could spoil sentiment in global markets, as a slowdown from the giant economy could soon translate into a slowdown in the U.S., Europe or elsewhere in Asia as well.
We may see the fears reflected in the stock markets. This morning, Japanese Nikkei futures were down almost 0.7 percent, at 29,000 points. The German DAX contract was trading down 0.1 percent, and Nasdaq 100 futures fell 0.3 percent, below 15100 points. The VIX fear index contract, on the other hand, is above 17 points.
Oil price continues to rise
With the energy crisis and China's declaration to buy energy resources at any cost, oil may continue to rise in price. Moreover, the US, Australia and some Asian countries are trying to lift pandemic restrictions and facilitate travel at the same time, which is expected to boost tourism and thus air traffic. This may further boost fuel demand. As a result, WTI crude oil prices are already pushing to $83.4 per barrel, the highest level since October 2014.
Expensive oil also means likely subsequent problems with inflation, which around the world may not be as transitory as central bankers originally anticipated, and in turn, rising energy costs, in addition to inflation itself, could ultimately lead to stagflation as production may begin to decline.
Inflation in New Zealand will force interest rate hikes?
The NZD/USD exchange rate seemed to rise sharply when it was announced that inflation in New Zealand had picked up at its fastest pace in ten years. However, the initial gains have now been largely erased and the exchange rate is in the region of 0.7060. New Zealand's annual inflation rate jumped from 3.3 in Q2 to 4.9 percent in Q3, exceeding forecasts and raising expectations for another 50 basis point interest rate hike in November by the Reserve Bank of New Zealand.
Analysts are still debating whether faster inflation in New Zealand today is a temporary phenomenon caused by supply chain disruptions caused by the coronavirus pandemic or something more permanent. A similar dilemma seems to be affecting almost the entire world today.
Daniel Kostecki, Conotoxia Ltd. (Forex service)
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