China’s outlook dominated by disappointing economic data

European stocks decline amid central bank caution

By Nadia Elbilassy | @Nadia Elbilassy | 3 July 2023

  • Disappointing economic data from China raises concerns about global demand slowdown

  • Chinese consumer prices showed a modest 0.2% increase in May, while producer prices fell by a larger-than-expected drop to -4.6%

  • European stocks decline as investors approach central bank decisions with caution

China CPI and PPI disappoint

Disappointing economic data released this morning has heightened concerns about a potential recession in the Chinese economy. The data revealed a modest 0.2% increase in consumer prices on an annual basis in May, while producer prices fell by a larger-than-expected -4.6% vs previous -3.6%.

These figures have raised worries about China, the world's second-largest economy, facing a recession and a potential slowdown in global demand in the near future. Despite efforts by Chinese policymakers to manage the situation through measures such as interest rate reductions and economic support initiatives, the data indicates ongoing challenges.

In 2022, China's consumer price index recorded an overall growth of 2%, prompting Beijing to set a target of approximately 3% growth for 2023. However, prices have once again declined and stabilized at nearly zero levels.

While food prices in China saw a 1% increase in May compared to the previous year, up from a 0.4% rise in April, non-food prices remained relatively unchanged on an annual basis, down from a 0.1% increase in April. These trends reflect a delicate balance in price dynamics within the Chinese economy.

The situation highlights the importance of closely monitoring economic indicators and government actions in China, as they can have significant implications for global markets and trade dynamics.

European stocks fall in the last session of the week

During today's trading, European stocks declined as investors approached the long awaited central bank decision week with caution. Global markets are muted as indicated by the VIX volatility index closing at its lowest level since the onset of the coronavirus pandemic three years ago.

European markets faced some pressure this week due to heightened expectations of the ECB raising interest rates by 25 basis points. This was influenced by the surprise rate hikes implemented by the Bank of Canada and the Reserve Bank of Australia earlier in the week.

The anticipation surrounding central bank decisions and potential interest rate changes can impact investor sentiment and market dynamics. As investors await the ECB's decision, there is a sense of caution and vigilance in the European markets.