![]() is seeing an improved supply-and-demand balance, which could help moderate goods inflation. Port times in both North America and Asia are down slightly, while data from the Federal Reserve Bank of New York suggest that the U.S. Fed officials indicated last month that the lockdowns in China were “likely to exacerbate supply-chain disruptions,” which in turn would “affect the inflation outlook” in a negative way, according to the minutes from the central bank’s June meeting.Īnalysts, however, point to the surge in exports seen in the latest China trade data, which helped ease fears of a slowdown that would further drive up the prices of goods and indicated that supply-chain bottlenecks are easing. Investors are anxious about another potential wave of Covid lockdowns in China. “They can’t fix supply-side factors but they can continue to put downward pressure on demand.” economist for Bank of America’s global research team. What would this mean for the Fed’s ongoing efforts to bring down inflation? A “more complicated picture” and “another headache,” which will likely force the Fed to become more aggressive when setting policy rates, according to Stephen Juneau, senior U.S. Most experts had rosy outlooks at the beginning of the year but have since revised them significantly lower, he says. While the “bar for wholesale shutdowns is higher than before,” suppressing cases to zero is going to be “difficult” given the extreme contagion of the new variants, he says.Ĭhina’s economic picture is muddled as data show the lag effect of the citywide lockdowns, Uy says. Meanwhile, investors are anxious about more lockdowns, says Adam Crisafulli, founder of market intelligence provider Vital Knowledge. “The cost of the Shanghai lockdown showed that there’s a very significant economic consequence to having a blanket response,” he says. He points to recent outbreaks in several cities where authorities have implemented more micro-level restrictions targeting neighborhoods or apartment complexes rather than an entire city. “There’s an argument that post-Shanghai, there’s been a bit of a change in China’s response,” with a “tweaking” of the Zero-Covid policy, Ahern says. People in Shanghai, for instance, “vehemently” do not want to go through a similar lockdown, according to Brendan Ahern, chief investment officer at China-focused ETF provider KraneShares. The Chinese government, however, also remains attuned to public sentiment. The Chinese leader insisted that a “dynamic Zero-Covid policy” is best for the country even if it temporarily “impacts economic growth,” which should still be maintained “as much as possible.” President Xi Jinping doubled down on the policy in an address last month, saying that it was the most “economic and effective” way forward and that a shift in Covid strategy would be “unthinkably” bad. Shanghai and Jilin, where there were full lockdowns, saw their fiscal revenue slump by 52% and 79%, respectively, from April to May compared with a year ago, according to Bank of America analysts.Ĭhina appears to be walking a fine line between maintaining its Zero-Covid strategy while trying to limit the economic harm that another widespread containment would bring. The country’s GDP grew by just 0.4% in the second quarter, a sharp decline from the 4.8% growth rate in the first quarter, according to official data published last week. “It’s kind of been supply-chain hell,” Musk said. On Tesla’s second-quarter earnings call Wednesday, billionaire CEO Elon Musk admitted that he was “concerned about overall liquidity of the company” as it was “uncertain as to when the Covid lockdowns in China would alleviate.” companies, including Apple and Tesla, which both faced supply-chain issues in China. The impact of the lockdowns, which lasted through April and May, was felt by several major U.S. “The scenario that's playing out in China right now is obviously a risk - not just for China but also the rest of the world.”
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