Global Macro Monitor

Along with housing prices, child-care costs are among the last remnants of inflation haunting Americans — a point that Biden administration economists have conceded. Although gas, cars and groceries, including bread, bacon and vegetables, have all become cheaper in the past year, day-care costs have risen 6.2 percent — more than double the rate of overall inflation.

Those high costs are increasingly factoring into how people plan to vote in the presidential election, just over six weeks away. More than one-third of mothers who are registered to vote said they worry “a lot” about affording child care, according to a recent KFF poll.  – Washington Post

EV charging infrastructure is growing around the world, aided by billions of dollars in government incentives. Installations are expected to rise by at least 800,000 in the second half of this year, a third more than the numbers posted from January through June, according to BloombergNEF estimates. Trends suggest China may see more installations in the final three months of the year, while government grants in the US and new entrants such as the automakers’ joint venture Ionna could boost growth in North America beyond 2024 despite slowing EV sales.  – Bloomberg

Italy’s economy was finally back to its pre-financial crisis peak. Getting back to where it started has taken over a decade longer than most other advanced economies, but let’s not be fussy about the details for now…

Canada and the US reached their 2007 output levels in already in 2010 and last year output volumes in the US were one-third larger than then. Germany and France reached that milestone in 2011 and their economies are now about 15 per cent larger than in 2007. The UK economy was larger than in 2007 a decade ago and it is now up 18 per cent from that level. – FT

Key Points:

1. China’s economy is slowing faster than expected, with analysts predicting it will miss its 5% growth target for 2023.
2. Industrial output, retail sales, and real estate investment have all weakened significantly.
3. Youth unemployment in urban areas reached 17%, with overall unemployment rising to 5.3%.
4. The property market crisis, responsible for about one-quarter of China’s economy, continues to drag down economic growth.
5. Real estate investment dropped by more than 10% in 2023, severely impacting family savings and local government revenues.
6. The Chinese government has shifted its focus to investment in advanced manufacturing instead of consumer-driven stimulus.
7. China’s private sector is facing increased regulatory pressure, reducing both domestic and foreign investor confidence.
8. U.S. companies in China have reported record-low profits, and many are shifting investments to Southeast Asia.
9. Global trade tensions are increasing as China boosts exports to offset domestic demand weakness.
10. Major financial institutions, including Goldman Sachs and Citigroup, have cut their 2023 Chinese growth forecasts to below 5%.

China’s economy is facing a sharper-than-expected slowdown, with analysts predicting that it will fail to meet its modest 5% growth target for the year. A broad range of economic indicators show significant declines, including industrial output, retail sales, and real estate investment. The Chinese stock market has also suffered, with a benchmark for Chinese equities dropping approximately 14% since May.  In addition, unemployment rates have risen, with the overall urban jobless rate reaching 5.3%, the highest level in six months. More alarming is the youth unemployment rate, which reached 17% before the government stopped releasing that statistic. Deflationary pressures further exacerbate these economic difficulties, signaling deeper structural issues.

Weakening Real Estate Sector

One of the primary factors behind China’s economic troubles is the real estate sector, which accounted for nearly a quarter of the country’s GDP until recently. A 2020 government policy that limited developers’ ability to borrow has resulted in a series of defaults, triggering a broader crisis. Investment in real estate has dropped by over 10% since January, compared to the same period last year. This downturn has impacted middle-class wealth as property values decline, eroding household savings and straining local governments, which rely on land sales for revenue. The double blow to both consumer wealth and public investment has significantly hindered economic momentum.

In response to these challenges, Chinese officials have resisted implementing large-scale stimulus packages akin to those used after the 2008 global financial crisis. Instead, the government is focused on boosting investment in advanced manufacturing and technology. A key priority is achieving self-sufficiency in critical industries, such as semiconductors, electric vehicles, and artificial intelligence.

Manufacturing investment has grown by 9% in 2023, and exports have risen for five consecutive months, reflecting some success in China’s export-led growth strategy. However, trade tensions with the United States and Europe are intensifying, as Western nations accuse China of using state subsidies to support industries and flood global markets with low-cost products.

Internationally, the implications of China’s economic slowdown are significant. A weaker Chinese economy means that domestic demand is declining, prompting Chinese firms to increase exports. This has led to mounting concerns in the U.S. and Europe about unfair trade practices. The Biden administration, for example, has responded by imposing tariffs on Chinese goods, including electric vehicles and solar panels. As China’s domestic challenges grow, its economic policies and export strategies are likely to have far-reaching consequences for global trade, investment, and political relations in the coming years.  

Stay tuned. 

COTD = Chart of the Day

According to Malthusian theory, populations grow exponentially but food supplies grow only arithmetically; at some point, therefore, the human population should outgrow its ability to feed itself. – IMF

COTD = Chart of the Day