Finimize - 🌾 Prepare for grain pain

What’s going on here?

Data out on Monday confirmed that China’s economy lost its magic last quarter.

What does this mean?

After kicking off the year with a bang, the world’s second-biggest economy started to feel the burn last quarter. And there seem to be three main culprits: first off, consumer confidence has taken a hit, with savings rates stubbornly high, suggesting folk are wary of splashing out. Secondly, the property sector, a hefty chunk of the economy, is still in a slump. And lastly, the West’s economic troubles have thrown a wet blanket on foreign demand for goods, dealing a blow to Chinese exports.

And sure, the economy still managed to grow by 0.8% from quarter to quarter – above the 0.5% estimates, but slower than the previous quarter. Plus the headline figure of a 6.3% year-on-year uptick is far less impressive when you remember that’s compared to back when major cities like Shanghai were in lockdown.

Why should I care?

Zooming in: Bring out the big guns.

This data’s not a shocker given the weak data out of China lately, but it does make clear that the country’s recovery is losing steam. And a few bright spots, like the better-than-expected jump in industrial production, won’t amount to much unless the government can boost spending and stave off the threat of deflation. So while there are rumblings of incoming measures to boost the economy, the real question is whether they’ll pack enough punch to reverse the slump and prevent 2023 from becoming a year to forget for China.

The bigger picture: Bad news, world.

China’s economy plays a starring role on the world stage, with the IMF predicting it'll be the top contributor to global growth over the next five years. But if China’s economy fails to bounce back, it could throw a wrench in these projections – especially given that global growth is already expected to be slower than pre-pandemic levels this year.

What’s going on here?

Russia pulled out of the Black Sea grain deal on Monday, jeopardizing the flow of key foodstuffs.

What does this mean?

Last July, right in the middle of the Ukraine conflict, the UN and Turkey managed to hammer out a grain export deal. And that’s been a lifeline ever since, ensuring the safe passage of nearly 33 million tons of crops from Ukraine via the Black Sea – with over half reaching developing nations. But Russia hasn’t been a fan of the deal from the start, arguing that the West’s sanctions are putting a damper on Moscow’s own exports. And now it seems the country’s patience has run out: it formally ended the deal on Monday, saying it will only change its stance if the “relevant agreements are fulfilled”.

Why should I care?

Zooming in: Second time’s unlucky.

This isn’t the first time Russia’s played this card: the country briefly exited the deal in November, only to rejoin under pressure from Turkey. But this time around, Turkey’s pleas might fall on deaf ears – especially after the nation ruffled Russia’s feathers by endorsing Sweden’s NATO membership bid last week. And that could spell trouble: after all, Ukraine’s a major player in the world’s grain and vegetable oil market, and this move threatens a crucial trade route just as the harvest season is about to kick off. And that might reawaken some dormant worries about a hard-hitting global food crisis.

The bigger picture: More pain, no grain.

The price of wheat jumped when the news broke, and for good reason: see, without the Black Sea route, grain has to take a pricier detour. And that extra cost could lead to hard-pressed farmers planting less next season, potentially hitting global food supplies in the long run. And with demand steady and supply dwindling, the world could see prices leap – adding fuel to the food inflation fire.