Analyst on the risk of stagflation and the slowdown in the real estate market


The risk of stagflation is “very real” in China over the next two quarters, as factory exit prices rise at a faster rate and the current electricity crisis is hurting economic growth, a analyst.

Stagflation refers to a situation in which the economy is simultaneously experiencing stagnation in activity and accelerating inflation. The phenomenon was first recognized in the 1970s, when an oil shock led to a prolonged period of higher prices but a sharp decline in GDP growth.

In China, the producer price index jumped 10.7% in September from the previous year – the fastest pace since October 1996, when data compilation began. Meanwhile, power cuts across the country prompted several major banks to cut GDP forecasts for China.

Such a situation has made it difficult for the Chinese authorities to significantly stimulate the economy, said Charlene Chu, senior analyst for Chinese macro-finance at Autonomous Research.

Chu told CNBC’s “Street Signs Asia” that the stimulus measures could increase energy demand and exacerbate ongoing power shortages. At the same time, factories having to go offline several days a week due to the electricity crisis would continue to hamper economic growth, she suggested.

“So because of that, I think we’re in a situation where there are a lot of factors weighing on growth right now that aren’t going to go away any time soon and we probably won’t be getting any aggressive Chinese stimulus over the years. next few months, ”Chu said.

“It will be a different dynamic that the world will adapt to,” the analyst added, explaining that the world is used to China stimulating its exit from various economic difficulties.

No “crisis of confidence” in real estate

The Chinese economy faces multiple challenges. The The 4.9% year-on-year growth recorded in the third quarter was the slowest in a year.

In addition to the electricity crisis which has hurt industrial production, a slowdown in the real estate sector has also hampered growth.

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Problems in China’s real estate sector have come to the fore in recent months as Evergrande and other developers struggle to repay their debt. This followed a campaign by Beijing to curb excessive borrowing among real estate developers.

Chu said the slowdown in the real estate sector had “very badly” affected China’s economic growth. But the country has not reached a point where confidence in the primary housing market is collapsing, the analyst said.

“I don’t think the authorities are trying to create a crisis of confidence in the entire developer industry,” Chu said.

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