Finimize - 🇨🇳 China's pork problem

What’s going on here?

The UK economy slowed down in October, so sleigh bells will likely be drowned out by recessionary alarms this holiday season.

What does this mean?

The British economy slipped by a much worse-than-expected 0.3% between September and October, which essentially means the country produced a lower value of goods and services that month. That’s important: keep that up for two quarters in a row, and the economy could be well on its way to a technical recession. Now, the nation was in slightly better shape than the same time last year, but the uptick was a lot smaller than economists expected. And with both the services and production sector slowing down over the month, the UK’s been left without an industry hardy enough to rely on.

Why should I care?

For markets: Hikes, hikes, go away.

The Bank of England (BoE) hiked interest rates to bring inflation to a halt. Problem is, the same tactic has ground down the economy too, while the higher mortgage rates they produce have already deepened the cracks in the UK housing market. So when the BoE meets on Thursday, the central bank will likely discuss the merits of cutting rates sooner rather than later next year.

The bigger picture: A sterling effort.

Inflation’s been falling faster in the US while the economy’s held steady, sparking predictions of rate cuts in the first half of 2024. And because higher interest rates correlate with a stronger currency and vice versa, the British pound has held stronger than the US dollar on the whole this year. But if the UK economy keeps losing steam, overseas investors may take their cash elsewhere – and if that happens, the poor pound may be worth fewer pennies.

What’s going on here?

China headed further into deflation territory, and the country’s favorite meat was largely to blame.

What does this mean?

Humans love to eat – so much so that food can make up a hefty chunk of countries’ inflation readings. But in China, it’s a different story. The price of pork, the country’s go-to meat, dropped nearly 32% in November, pulling down overall food prices by over 4%. And because food has such a heavy impact on prices as a whole, that partly explains why Chinese consumer prices notched their sharpest decline in three years. Now it’s true, much of the world would envy prices that are coming back down to Earth. But China’s on the verge of deflation – an economy-busting fall in prices that’s harder to tackle than inflation.

Why should I care?

For markets: Make friends in the right places.

China used to make a killing selling stuff like steel and cars abroad. But with the country battling a slowdown within its own borders, it’s added discount stickers to most of its exports – a desperate bid to make sure some cash flows into the economy. China’s currency weakening against the dollar hasn’t helped either, with foreign buyers able to get their hands on more products for less. One man’s trash is another’s treasure, mind you: if countries like the US can get Chinese goods for cheap, that could help them in their fights against inflation.

The bigger picture: Down the helter skelter.

Deflation’s the enemy of any country, but especially ones with a lot of debt. (You know, like China.) Just think: if you make less money from every item you produce and sell, it takes a lot more effort to reach a target amount. For governments, that means they fall behind on their massive debts. And for everyday folk, the daunting price of borrowing puts them off using credit cards and loans to spread out spending, meaning less money moves around the economy.