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The unbearable weakening of the Chinese economy

After China cut its interest rate twice this summer and reduced reserve requirement ratio three times since last year as a response to the European crisis and the global weakening, the last remaining hope for the world economy starts to fade. With the recent disappointing Chinese figures in mind, the third quarter started on a surprisingly weak note for China despite all the hopes (and prays) for stimulus and monetary easing. China’s hands, however, are rather tied when it comes to monetary easing. In a country, where food prices account for 30% of the CPI calculation (in contrast to less than 8% in the US) and are already set to rise due to the US drought, the PBOC will have to think twice before taking any action in that direction. With no signs of global recovery and with hardly any signs of stabilization, we could soon see another round of monetary policy extravaganza coming from the US, as has been expected by the markets in the past months. What will be more interesting though will be the reaction of the markets that seem to have now fully priced in the event.
Dafni Serdari
Market Analyst

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