#todayinsight: China's Economic Dilemma: Deepening Deflation and Moody’s Downgrade Warning Amid Sluggish Recovery China's inflation fell further into negative territory. In November, the annual change in the consumer price index was 50 basis points, which was 30 basis points lower than predicted. Factory gate prices (PPI) deflation, on the other hand, has deepened, pointing to growing deflationary pressures as domestic consumer weakness casts doubt on the economic recovery. The producer price index (PPI) fell 3.0% year on year in November, compared to a 2.6% drop in October, marking the 14th consecutive month in which the PPI is declining. China's PMI data was mixed anyway; manufacturing PMI from various sources indicated both positive and negative growth. In any case, soft economic data is not as important as hard economic data. Soft data, such as PMI, are collected through surveys and questionnaires, whereas hard data, such as inflation figures, are used to create ex-post economic indicators of the economy rather than agents' predictions for the coming months. Last week, Moody's issued a downgrade warning on China's credit rating, stating that the costs of bailing out local governments and state firms, as well as controlling the property crisis, would put additional strain on the Chinese economy, which has already lost momentum. China's finance minister described Moody’s warning as disappointing while assuring that the risks are manageable. Meanwhile, we can be certain that economic growth has slowed in comparison to a decade ago. #todayinsight #globaleconomy #globaltrade Source: The Daily Shot
