(Bloomberg) -- Deflation stalking China since last year is now showing signs of spiraling, threatening to worsen the outlook for the world’s second-largest economy and raising calls for immediate policy action.
Receding inflation and growing economic concerns prompted the European Central Bank to lower interest rates a quarter point for the second time this year. Clues on the timing of the next cut were in short supply on Thursday, with President Christine Lagarde and colleagues awaiting data on how drastically the economy is deteriorating — and how that will shift inflation.
In the US, an unexpected pickup in underlying inflation reduced odds of a bigger rate cut from Federal Reserve policymakers this coming week.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy, markets and geopolitics:
Asia
A broader measure of China’s economy-wide prices known as the gross domestic product deflator will likely extend its current five-quarter drop 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 in 1993. The danger is deflation could snowball by encouraging households reeling from falling paychecks to cut back on spending, or delay purchases because they expect prices to fall further.
Japanese companies are increasingly abandoning an approach to business in China that once seemed immune to politics, a stark shift after years when they were the biggest single investors in their neighbor’s economy. Almost half of Japanese firms in China polled in a recent survey said they won’t spend more or will cut investment this year. Companies listed rising wages, falling prices and geopolitics as the biggest issues they faced.
South Korea is seeking to ramp up its global infrastructure sales by taking advantage of what it sees as frustration with China in Africa, while working with other nations to help reconstruct war-ravaged Ukraine. The focus will fall on emerging nations, where growing populations are fueling a surge in demand for roads, bridges and ports as South Korea’s own economy slows and births fall.
Europe & Middle East
Like its global peers, the ECB is getting more confident that consumer-price growth is returning to target following its historic spike. The euro zone’s 20-nation economy, meanwhile, is losing momentum. Households are failing to support the rebound that began earlier in the year and manufacturers remain in the doldrums due to soft demand from outside the single currency area. That weakness prompted the ECB to trim its forecasts for gross domestic product in 2024, 2025 and 2026.
Euro-zone consumers aren’t rushing to open their wallets — prompting some to ask whether the economic recovery they were supposed to spearhead will ever arrive. Should the weakness persist into 2025 and drag inflation below target, investors and analysts reckon more dramatic monetary loosening may be required.
The UK economy stagnated for a second month in July, suggesting that a rapid recovery from recession is now losing momentum in a blow for Prime Minister Keir Starmer. Labour, which swept to victory in the July general election, is counting on growth to repair the public finances and deliver the boost to living standards promised to voters.
Israel’s finance ministry slashed its projection for growth this year, underlining the strain that the almost year-long war in Gaza has put on the country’s economy. The new projection of 1.1% means Israel’s economy is set to grow at the slowest pace this year since around 2009, with the exception of the Covid-19 pandemic in 2020.
US
Underlying inflation unexpectedly picked up in August on higher prices for housing and travel. Shelter prices, the largest category within services, climbed the most since the start of the year. Excluding housing and energy, service prices advanced 0.3%, the most since April, according to Bloomberg calculations.
Millions of Americans are falling behind on student loan payments a year after the pandemic freeze ended – and soon that will start hurting their credit scores.
Taylor Swift has proven herself to be a cultural and economic force. As the US presidential race enters its final sprint, all eyes are on whether she can become a political one as well. The first indication of her influence may come from those who register to vote at her urging: Swift’s custom link to Vote.gov drove more than 300,000 visits to the site as of 11 a.m. Wednesday, according to a General Services Administration spokesperson.
Emerging Markets
Brazil’s annual inflation eased roughly in line with expectations in August, offering limited relief to a central bank that’s under pressure to lift interest rates to contain above-target price increases. Brazil watchers say the move is also necessary to respond to a slide in the value of the currency, increased public spending and worsening inflation forecasts.
World
The world’s advanced economies might just have a new reason to hope for a firmer growth footing in the next year, if some of the most bearish forecasts for oil hit the mark. With global benchmark Brent crude falling below $70 a barrel for the first time since late 2021 on Tuesday, a key component of the energy shock that drove the worst inflation crisis in a generation is already benign enough to give policymakers a green light for interest rate cuts.
Germany sent its first warship through the Taiwan Strait in 22 years, defying China’s warnings as relations between the two sides fray over trade and Russia’s war in Ukraine. Germany’s move highlights a growing willingness by US partners to defy President Xi Jinping and send ships through one of the world’s busiest shipping lanes.
Outside the ECB, Peru cut interest rates to the lowest level among Latin America’s major economies. Armenia, Serbia and Pakistan also lowered rates, while Georgia and Uzbekistan held borrowing costs steady. Russia’s central bank tightened monetary policy as inflation remains well above target.
--With assistance from Philip Aldrick, Galit Altstein, Irina Anghel, Claire Ballentine, Whanwoong Choi, Arne Delfs, Sam Kim, Gregory Korte, Yian Lee, John Liu, Yujing Liu, Francesca Maglione, Marilen Martin, James Mayger, Jana Randow, Tom Rees, Andrew Rosati, Zoe Schneeweiss, Mark Schroers, Grant Smith, Craig Stirling, Alex Tanzi, Alexander Weber and Emily Yamamoto.
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