The word “stagflation” is gaining more and more weight in economic analysis, not only in the prospects for Europe or the United States. Fear of this phenomenon, characterized by the sharp rise in prices at a time of economic stagnation, has increased in recent months in full recovery after the hard ‘blow’ caused by the pandemic. And more and more experts are focusing on the second world economy, China, precisely the only one of the great powers that in 2020 managed to expand its gross domestic product (GDP). Is the Asian giant already suffering from stagflation?
Chinese factory activity contracted more than expected last month, decreasing for the second consecutive month. This was shown this Sunday by the official purchasing managers index (the well-known PMI) of the manufacturing sector for October: it stood at 49.2 points, below the 50 level that separates expansion from contraction. However, the PMI prepared by Caixin, known this Monday, has stood at 50.6 points, showing the growth rate since June.
Experts tend to trust the official PMI more. In this regard, Zhang Zhiwei, chief economist at Pinpoint Asset Management, highlighted that the production indicator has fallen to lowest level since it was published in 2005, excluding the 2008 global financial crisis and the covid-19 pandemic in February last year. At the same time, however, the producer price index (PPI) has risen to highest level since 2016.
“These signs confirm that China’s economy is probably already going through stagflation“Zhang said in a note this Sunday collected by the CNBC.
Thus, the expert highlights the “worrying” signal given by prices, or rather the ‘contagion effect’ between them. “Inflation in input prices has been high for many months, driven by rising commodity prices … But the jump in the producer price index in October is alarming.”
This, neither more nor less, means that inflationary pressure is shifting from early stage to late stage firms and, therefore, to consumers.
Chinese industry in trouble
“The industrial sector [chino] is clearly in a very difficult situation, “said Raymond Yeung, chief economist for Greater China at ANZ, today on the show. Squawk Box Asia from CNBC.
Likewise, from Capital Economics they point out that the production of the factories of the Asian giant was slowed by the reduction of the electrical supply, the shortage of materials and the high costs of the inputs. This is a consequence of the serious energy crisis that China is going through in the face of the coal shortage.
“This has resulted in companies having to further reduce their inventories and lead to longer delivery times. In particular, This shortage and the increase in the prices of raw materials are having an impact on the increase in producer prices“, has asserted Sheana Yue, economist of the firm.
China’s economy could be shutting down faster than you think
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