Deflation in China impacting global markets, leading to reduced goods prices in US and Eurozone

From Investing.com: 2024-07-14 03:01:02

China’s economic slowdown is causing deflationary pressures impacting global markets, leading to reduced goods prices in the US and Eurozone, according to Morgan Stanley. China’s deep deflation is affecting core goods sectors like apparel and electronics, resulting in a marginal reduction in core inflation rates of about 0.1%.

Morgan Stanley predicts central banks like the Federal Reserve and European Central Bank may consider monetary easing measures to address the impact of China’s deflation spillover. China’s role as a major goods exporter exacerbates deflation, affecting sectors like US apparel with potential CPI declines of up to 0.3% due to lower import prices from China.

The investment banking firm expects China’s inflationary outlook to face challenges, with the Producer Price Index (PPI) not exiting deflation territory until the second half of 2025. Nominal GDP growth in China is projected to remain below 5% in the next few years, according to Morgan Stanley.

Morgan Stanley economists warn that sustained deflationary pressures could persist without significant shifts towards consumption-led growth strategies in China’s economic policy. Efforts to stimulate manufacturing investment may need to be balanced with a focus on boosting domestic consumption to address deflationary trends.



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