MAGGIE PAGANO: The problems of China and Russia raise the prospect of a more insular world
Rising geopolitical tensions are pulling some of the world’s largest economies in contentious and competitive directions.
In China, central bankers cut interest rates again yesterday in an attempt to revive activity in an economy that looks more and more moribund by the day.
A slew of data, including for retail sales, industrial production and investment, added to fears that China’s slowdown could be worse than expected.
The latest figures follow last week’s gloomy economic indicators showing a big drop in both import-export trade and consumer spending.
It’s a double whammy. A slowdown in manufacturing output, at what was once the world’s largest industrial workshop, but also a slower-than-expected rebound in consumption following the easing of China’s tough lockdown.
Slowdown: Central bankers in China cut interest rates again in an attempt to revive activity in the country’s economy.
In another sign of the nervousness of the ruling Communist Party, the authorities suspended the publication of data on youth unemployment after it hit a record 21.3 percent in June.
Hiding these numbers from its citizens reveals how nervous Xi Jinping’s leadership is about trouble.
In fact, the only justification for the party’s existence is its reputation for creating a booming economy.
Without that legitimacy, the party has little else to offer. The cracks in his overbearing authoritarian regime can only widen.
Fears are also growing that one of China’s biggest property developers is about to collapse.
County Garden, which has assets of around £189bn, has defaulted on almost a dozen bonds, raising concerns of contagion in global financial markets.
Attempts to deleverage in the real estate sector, delayed by the long lockdown, are looming again.
Farther north in Russia, the authorities took an equally nervous tactic.
The central bank raised interest rates by 3.5 percentage points to 12 percent to stem the collapse of the ruble, which plunged earlier this week to lows last seen when Russia invaded Ukraine.
Even this big jump in rates is unlikely to support the currency, which will remain depressed as Russia shells out billions in military spending and Western sanctions tighten its trade balance.
What these different dynamics show is that we are returning to a more insular world with more country-specific problems.
Until the Covid pandemic, most countries were moving in a similar direction, bent on growing, with companies relying on highly interconnected global supply chains.
But the lockdown broke the chain and we are still reeling from the repercussions.
The West has been taking risks away from countries like China for manufacturing and, indeed, Russia, for natural resources. At the same time, China is turning inward.
It will be interesting to hear what central bankers have to say about these changes when they gather in Jackson Hole next week for their annual symposium.
This year’s title is appropriate. Structural changes in the global economy. There will be some benefits from China’s slowdown on the inflation front.
But there will also be unintended consequences of these changes, most dangerous as a result of an inevitable slowdown in global growth.
Angels at M&S
Stuart Rose, the former chief executive of Marks & Spencer, used to say that running the retailer was like running the NHS: everyone had a vision and everyone had a solution. And he’s right.
We are quick to criticize the retailer and even quicker to give our two cents worth on what they need to do to make it right.
But M&S seems to have managed without our advice. It’s great that the retailer raised its earnings outlook for the half, gaining customers in the clothing, home and food areas.
And it’s winning over young buyers, an ambition it’s been trying to achieve for decades.
After recent updates from Next and Primark, shoppers are proving remarkably resilient. How long it lasts is another matter. For now, M&S is on the side of the angels and shares are also up.
the b&m brothers
B&M’s billionaire brothers Simon, Bobby and Robin Arora seem the most likely to rescue Wilko’s discount stores.
If they can work their magic, as they have at B&M, and not draw too many dividends, they will do well.