Charting the Global Economy: China’s growth slows dramatically, and the world’s greatest asset class declines

Due to COVID-19 and the government’s response, economic growth in China decreased dramatically in 2022 compared to a year earlier, resulting in the second-weakest performance since the 1970s.  Although experts anticipate a pick-up in activity this year, China is now dealing with near record-low consumer confidence, a stagnant real estate market, and a declining population.

In the meanwhile, central bankers cautioned against complacency over the fading of the global inflation shock at the World Economic Forum in Davos this week, saying they’ll keep hiking interest rates to guarantee their work is done. However, in Japan, policymakers maintained their primary policy settings, surprising many and causing significant fluctuations in the financial markets. Consumer prices decreased for a second consecutive month in the UK in December, while a gauge of wholesale inflation in the US dropped to its lowest level since the pandemic’s beginning.  At the end of the year, price pressures in South Africa also subsided to their lowest level in seven months.

As a viral wave swept the country, China’s economy proved more resilient than economists had predicted, suggesting that the worst of the downturn may be over as a difficult recovery gets underway.  The fourth quarter and December numbers came in better than experts anticipated, even though the 3% growth in the gross domestic product last year was the second-slowest rate since the 1970s. 

Haruhiko Kuroda, the governor of the Bank of Japan, is ready to finish his term by causing rates in the second-largest government bond market in the world to soar. The benchmark 10-year yield in Japan fell as much as 14 basis points on Wednesday, defying some predictions that the BOJ would change its stance once more. The amount of the fall is comparable to the intraday decline that occurred on April 5, 2013, immediately following Kuroda’s announcement to start quantitative easing by vowing to double the monetary base. 

The greatest cost of living crisis in a generation may be beginning to improve as UK inflation declined for a second month in December. Slower than November and down from a record above 11% in October, consumer prices increased by 10.5% from a year earlier. The government’s 2% inflation objective has still been exceeded five times.

Even before the train system and postal service collapsed over the holiday season, Britain was seeing its worst industrial unrest in more than 30 years. Following a wave of walkouts brought on by the worst cost-of-living crisis in a decade, there were 467,000 fewer working days lost to strikes in November, a 10-year high. 

Investor confidence in the German economy increased to its highest level in a year, the most recent indication that confidence is growing as the pressure from skyrocketing energy costs eases.  Separately, Chancellor Olaf Scholz assured Europe’s largest economy that the nation will escape a recession this year despite Russia’s oil shortage. December marked a fourth consecutive month of declines in new US house building, capping off a poor year for the sector, which saw annual housing starts dip for the first time since 2009. Separate information revealed that the US market for previously owned houses dropped 17.8% last year, the worst yearly decline since 2008.

 

Last month saw the largest major dip in retail sales in a year, and business equipment output also fell, adding to concerns that the economy is slowing down as a result of tighter Federal Reserve policies. South Africa’s inflation fell to a seven-month low in December, despite the fact that increasing price pressures, such as a sharp rise in power prices, may necessitate the central bank maintaining higher interest rates for a longer term.

The largest interest rate reduction this year has been implemented by the central bank of Angola because it expects inflation to continue to decline. While Indonesia raised borrowing costs, Japan, Malaysia, Norway, and Turkey held borrowing prices steady. Belarussian policymakers likewise reduced borrowing costs. According to a panel in Davos discussing the possibility of a recession, China’s openness and the durability of advanced economies give hope for the globe to survive 2023 even if some struggle to expand.  As the Planet Economic Forum got underway, the business community and analysts were depressed, and speakers at the Swiss resort converged on cautious optimism for the future of the world. 

The greatest asset class in the world is in decline, and it has moved beyond residential real estate to include commercial real estate, raising the prospect of financial turbulence spreading across the whole economy.  According to statistics gathered by Bloomberg, about $175 billion of real estate credit is already distressed—roughly four times more than the next largest business. Graphing the World Economy The world’s greatest asset class declines, and China’s economy slows sharply.

The post-pandemic approach will be put to the test as China’s economic growth in 2022 is among the weakest ever.

The fourth quarter of 2022 will see a decline in the real estate market due to strong COVID limitations.  Growth fell to one of its lowest levels in nearly 50 years, putting more pressure on officials to introduce stimulus measures this year. Although observers observed that the general economic momentum across China remained weak and emphasized the problems confronting Beijing when it unexpectedly abandoned its “zero-COVID” policy last month, the quarterly growth and several December data points, such as retail sales, exceeded market forecasts. 

According to figures released on Tuesday by the National Bureau of Statistics (NBS), the gross domestic product (GDP) increased by 2.9% from October to December of last year, which was a lower rate than the third-quarter growth of 3.9%. The rate nonetheless outperformed the 0.4% growth in the second quarter and the 1.8% gain predicted by the market.

Beijing’s abrupt easing of strict anti-virus regulations has raised hopes for an economic recovery this year, but it has also caused a dramatic increase in COVID instances, which experts fear might impede development in the short term.  A recovery in GDP will be primarily dependent on shell-shocked consumers because of the real estate downturn and sluggish global demand.

According to Harry Murphy Cruise, economist at Moody’s Analytics, “China’s 2023 will be rocky; not only will it have to negotiate the possibility of fresh COVID-19 waves, but the country’s deteriorating residential property market and sluggish global demand for its exports will be substantial restraints.

The GDP increased 3. 0% in 2022, falling well short of the stated goal of “about 5.5″% and reversing the 8.4% rise in 2021. With the 2.2% expansion following the initial COVID hit in 2020 excluded, it is the weakest performance since 1976, the final year of the disastrous ten-year Cultural Revolution.Activity statistics in December startled analyst Louise Loo, senior economist at Oxford Economics.generally to the positive but remains poor, particularly across demand-side areas like retail expenditure.

According to Loo, the “evidence thus far confirms our long-held assessment that China’s reopening boost will be relatively anemic at first, with consumer spending being a significant laggard in the first stages.  Strong growth in China might help prevent the anticipated global recession, but it could also fuel greater inflationary concerns at a time when regulators are just beginning to control record price increases.

REOPENING DIFFICULTIES

Quarterly GDP growth slowed to 0.0% in the fourth quarter from 3.9% in the July-to-September period, exposing underlying weakness in several industries. Businesses are battling with rising infections since Beijing lifted the COVID limitations, indicating a rocky rebound in the near future. “The continued ‘exit tsunami’ on the back of China’s faster-than-expected reopening has taken a severe toll on economic activity in recent months,” economists at Goldman Sachs said, pointing out the yearly declines in both steel product and cement output in December.

Retail sales, a crucial indicator of consumption, fell 1.8% last month after falling 5.9% in November, while factory production increased 1.3% in December from a year earlier, easing from a 2.2% increase in November. Despite industrial and service activities being constrained by the rise of COVID infections, official figures showed a decrease in unemployment. According to national surveys, the unemployment rate decreased from 5.7% in November to 5.5% in December.

To bolster domestic demand and the overall economy this year, China’s senior leaders have committed to making increased spending a priority. This comes as local exporters suffer as a result of the threat of a worldwide recession. This year, the central bank is expected to gradually loosen policy. According to policy sources, China will probably strive for economic growth of at least 5% in 2023 to keep unemployment under control.

POPULATION AND PROPERTY HEADWINDS

One of the main growth inhibitors in China was the real estate market. According to NBS statistics, investment in the industry dropped by 10.0% year over year in 2022, marking the first loss since records began in 1999. Property sales also declined by the most since 1992, indicating that government assistance measures aren’t having much of an effect just yet. To alleviate a protracted liquidity crunch that has affected developers and delayed the construction of several housing projects, authorities recently unveiled a flurry of initiatives aimed at homebuyers and real estate developers.

The NBS data revealed that China’s population fell in 2022 for the first time since 1961, compounding the difficulties facing the economy and the government. This historic development is anticipated to be the beginning of a protracted period of decline in China’s citizen population, with India overtaking it as the world’s most populous country in 2023.  “In the upcoming years, it is expected that the population will begin to decline.”With ramifications for prospective growth and local demand, this is crucial,” said Zhiwei Zhang, Pinpoint Asset Management’s senior economist.

After the government repressed the private sector, they departed. They escaped a strict “zero COVID” policy. For their family and their fortune, they looked for safe havens. They left China, where they believed their assets and personal safety were increasingly at the whim of the autocratic regime, for Singapore, Dubai, the United Arab Emirates, Malta, London, Tokyo, and New York.

Many Chinese entrepreneurs relocated abroad, either permanently or temporarily, in 2022, a year that proved to be extraordinarily difficult for China. They were a part of a wave of emigration that gave rise to “runxue,” one of the most popular internet catchphrases of the year, which is understood to signify leaving China. These individuals represent an important, if privileged, piece of China’s economic puzzle, and they are removing their wealth and enterprises from the country at a time when growth is at its slowest rate in decades.

Many of them are still affected by the recent years, when China’s leadership attacked the nation’s largest private enterprises, demonised its most illustrious businesspeople, decimated entire industries with arbitrary regulation, and steadfastly defended COVID-19 policies even as many companies were struggling. The entrepreneur class will not be readily persuaded, even though the government’s rhetoric and actions have recently become more pro-business. This group has lost money, fortunes, and most importantly, faith in the leadership.

Singapore was a top choice for the business elite of China when looking for such a place. Huo, the owner of Lotusia, a Singapore-based advisory firm that handles visa applications and company registrations, asserted that his clientele of Chinese nationals had dramatically increased in the year prior. People who operate in the fintech, gaming, education, and cryptocurrency industries in China—all of which have recently been the target of government crackdowns—had enlisted his assistance.

His phone lines “were ringing off the hook” during the Shanghai shutdown, he claimed. The affluent, he claimed, knew that, despite their affluence, they would still have to struggle to get food and supplies due to “zero COVID’s” severe limitations. Huo has been busy answering inquiries even during the last several weeks, after the Chinese government’s opening of the door to the private sector and Hong Kong’s commitment to luring crypto talent from the mainland.

Singapore was a top choice for the business elite of China when looking for such a place. Huo, the owner of Lotusia, a Singapore-based advisory firm that handles visa applications and company registrations, asserted that his clientele of Chinese nationals had dramatically increased in the year prior.

edited and proofread by nikita sharma