The early indications suggest China is wholly unprepared for reopening and has moved hastily to change its zero-Covid policy out of necessity. Beijing is facing its first big Covid wave and is already running out of medication. Emergency departments are reporting an influx of patients.
It now looks like China was forced to reopen in a bid to stem the economic downturn. Chinese exports contracted 8.7% y/y in November. Imports dropped 10.6% y/y: domestic demand has dried up. Passenger car sales – the one area of relative strength – fell 9.5% y/y in November too, according to data released today. China is heading for deflation.
Both the export and import data were incredibly weak and not isolated incidences. They follow the slump in freight rates, and very soft Taiwan and South Korea trade numbers. Taiwanese exports to China ($ terms) tumbled 23.6% y/y last month, pushing global shipments down 13.1% y/y. Exports of electronic integrated circuits & microassemblies to the world posted a first annual decline (-1.9%) since April 2019.
The inflation numbers in the US should surprise to the downside over the next couple of months. Whether this changes much for the Fed, the ECB, or the BoE (in terms of the rate hike path for early 2023) remains to be seen. So far, the global downturn is simply leading to a deeper inversion of the yield curve, as expected.
The combination of higher rates, together with the drop in house prices in China and Hong Kong, is now pushing property prices lower in the UK (both CRE and residential). The Halifax reported a 2.3% slump in house prices in November. The outlook for house prices over the next year is now worse than in the immediate aftermath of Brexit and during the first wave of the pandemic, according to RICS.
