May 24, 2022
China’s economic slowdown has global implications
COVID-19 takes its toll on China’s economy
China’s economic slowdown is setting the tone for Asia. The government has locked down major cities, like Shanghai, as part of its COVID-zero policy, and as a result, industrial output and retail sales have fallen the past two months while the unemployment rate increased to 6.1% in April. Factory shutdowns have put additional pressure on already existing global supply-chain disruptions.
The chart shows that both services and manufacturing industries in China have been in contraction territory since March, the weakest levels recorded since the early days of the pandemic in early 2020.
What it may mean for investors
- We believe China’s government lockdown is likely to weigh on aggregate emerging market economic growth, while also aggravating supply-chain disruptions and inflation around the globe.
- On May 18, we raised our 2022 year-end target for global inflation to 6.2% (from 5.4%) and lowered our target for global gross domestic product (GDP) growth to 2.5% (from 3.0%). We also lowered our target for emerging market GDP growth to 3.2% (from 3.8%). We remain unfavorable on Emerging Market Equities and prefer U.S. Large Cap and U.S. Mid Cap Equities over international stocks.
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