The chances of stagflation in China are high, with the rise of producer prices and energy supply deficit making economic activities lag behind.
Stagflation is the phenomenon when an economy’s productivity does not grow, whilst inflation remains high. It usually occurs in times of supply shocks. It was first identified on a wider scale in the 1970s, during an oil crisis.
According to Charlene Chu, analyst of autonomous research senior, this fate awaits China, as well.
Producer prices increased by 10,7% in September compared to that of the previous year’s. This is the fastest recorded growth rate since 1996 (It is important not to overlook the fact that this is only because it is the first year of this kind of data being available). Meanwhile, the progress of the Chinese economy is stagnated. Most banks have modified this year’s annual forecast downward.
Charlene Chu claims that amidst all the other present problems the Chinese government can not properly encourage the economy, since this would result in a higher demand for energy, in which field they are already experiencing a significant deficit, furthermore increasing the list of existing problems. Meanwhile, companies have to stop production for several days because of energy supply issues.
The analyst says, that this situation will impact the world’s economy, too. „This will result in a different dynamic for the world, as well, since it is used to China reacting to economic hardships with encouragement” – said Charlene Chu.
The indebtedness of real estate sectors poses a serious issue for the country, to which the Chinese government reacted with tightening borrowing. Charlene Chu thinks this will pack a mean punch for the Chinese economy.