With Factory Deflation Deepening, external demand wavering does China’s first real recession loom?

China’s Producer Price index, that measures the average changes in prices received by domestic producers for their output, fell at its sharpest rate in four years indicating a global slowdown in demand for Chinese goods, according to figures released last week.

That same data showed an unexpected growth in exports in April – perhaps helped by low oil prices – but also showed a stronger than unexpected decline in imports signaling weaker domestic demand.

Producer Prices in China decreased to 96.90 points in April from 98.50 points in March of 2020.

For China this is uncharted territory. It is the first time the NBS has released quarterly negative growth figures since they were first published in the 1990s. The January to March quarter was clearly a supply driven event as China closed down huge sectors of its economy to combat the lethal Coronavirus.

These figures, with the explosion of virus transmission and control measures beyond China’s border, the swelling ranks of unemployed in the US coupled with Washington’s increasingly belligerent stance toward Beijing could be signs of a potentially external demand driven recession could be looming.

China Producer Prices Change

The dire economic impact of the Corona-Virus has prompted the Vice-Premier, Li Keqiang, to to make the unprecedented measure to forgo issuing an annual GDP target.

Some analysts believe the rate at which the PPI are falling will give Beijing room to loosen fiscal measures to stimulate demand. But without the true cost of the epidemic yet known it is difficult to predict how those measures will work. However, with inflation fears diminishing now could be a good time for the BoC to cut borrowing rates.

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Author: Ryan Perkins

Ryan Perkins is a Geopolitical Analyst whose work has been published around the world and used by global companies and think tanks.