Global economy chart: Deflation concerns mount in China

(Bloomberg) –The deflation that has dogged China since last year is now showing signs of intensifying, threatening to worsen the outlook for the world’s second-largest economy and prompting calls for immediate policy action.
Falling inflation and growing economic concerns fueled the European Central Bank Lower interest rates There were few clues on Thursday about the timing of the next cut, as President Christine Lagarde and her colleagues awaited data on the extent of the economy’s deterioration and how this will affect inflation.

In the United States, an unexpected pick-up in underlying inflation reduced the chances of a bigger rate cut. Federal Reserve Policymakers will be speaking out on the issue next week. Below are some of the charts that appeared in Bloomberg this week on the latest developments in the sector. global economymarkets and geopolitics:

Asia

A broader measure of prices across China’s economy, known as the gross domestic product deflator, will likely extend its current five-quarter decline into 2025, according to Bloomberg Economics and analysts at banks including BNP Paribas SA. That would amount to China’s longest streak of deflation since data began being collected in 1993. The danger is that deflation could snowball by encouraging households, reeling from falling wages, to cut spending or delay purchases because they expect prices to fall further.

Japanese companies are increasingly abandoning a business strategy in China that once seemed immune to politics, a sharp turnaround after years in which they were the largest single investors in their neighbor’s economy. Nearly half of Japanese companies in China surveyed in a recent poll said they will not spend more or will cut investment this year. The companies cited rising wages, falling prices and geopolitics as the main problems they face.

South Korea is seeking to boost its global infrastructure sales by tapping into what it sees as frustration with China in Africa, while working with other nations to help rebuild war-ravaged Ukraine. The focus will be on emerging countries, where population growth is driving increased demand for roads, bridges and ports, as South Korea’s own economy slows and birth rates decline.

Europe and the Middle East

Like its global peers, the ECB is increasingly confident that consumer price growth is returning to target after its historic peak. Meanwhile, the 20-nation eurozone economy is losing momentum. Households are failing to sustain the rebound that began at the start of the year and manufacturers remain stagnant due to weak demand from outside the single currency area. That weakness prompted the ECB to cut its forecasts for gross domestic product in 2024, 2025 and 2026.

Eurozone consumers are in no rush to open their wallets, leading some to question whether the economic recovery they were meant to drive will ever come. If weakness persists into 2025 and drags inflation below target, investors and analysts reckon more drastic monetary easing may be needed.

The U.K. economy stagnated for a second month in July, suggesting the rapid recovery from recession is losing momentum and dealing a blow to Prime Minister Keir Starmer. The Labour Party, which swept the general election in July, is counting on growth to clean up public finances and deliver the boost to living standards promised to voters.

Israel’s Finance Ministry has cut its growth projection for this year, highlighting the strain that the nearly year-long war in Gaza has put on the country’s economy. The new projection of 1.1% means that Israel’s economy will grow at the slowest pace this year since about 2009, with the exception of the Covid-19 pandemic in 2020.

US

Core inflation unexpectedly picked up in August as housing and travel prices rose. Housing prices, the largest category within the services sector, rose the most since the start of the year. Excluding housing and energy, services prices advanced 0.3%, the biggest gain since April, according to Bloomberg calculations.

Millions of Americans are falling behind on their student loan payments a year after the pandemic-related loan freeze ended, and that will soon start to affect their credit scores.

Taylor Swift has proven to be a cultural and economic force. As the U.S. presidential race enters its final stretch, all eyes are on whether she can become a political force, too. The first hint of her influence may come from those who register to vote at her urging: Swift’s personalized link to Vote.gov generated more than 300,000 hits to the site as of 11 a.m. Wednesday, according to a spokesman for the General Services Administration.

Emerging markets

Brazil’s annual inflation eased roughly in line with expectations in August, offering limited relief to a central bank under pressure to raise interest rates to contain above-target price increases. Brazil watchers say the move is also needed to respond to a fall in the value of the currency, higher government spending and worsening inflation forecasts.

World

The world’s advanced economies may have new reason to expect firmer growth next year if some of the most pessimistic oil forecasts come true. On Tuesday, global benchmark Brent crude fell below $70 a barrel for the first time since late 2021, showing that a key component of the energy shock that drove the worst inflation crisis in a generation is now benign enough to give policymakers the green light for interest rate cuts.

Germany sent its first warship through the Taiwan Strait in 22 years, defying warnings from China at a time when relations between the two sides are deteriorating over trade and Russia’s war in Ukraine. Germany’s move underscores the growing willingness of U.S. partners to defy President Donald Trump. Xi Jinping and send ships through one of the world’s busiest shipping routes.

Outside the ECB, Peru cut interest rates to the lowest level among major Latin American economies. Armenia, Serbia and Pakistan also cut rates, while Georgia and Uzbekistan kept borrowing costs stable. Russia’s central bank tightened monetary policy as inflation remains well above target.