It has been a long, uphill struggle for the global economy emerging from the shock of the Covid-19 pandemic. That task is now complicated by the crisis in Ukraine. Global economic optimism has been in a fragile state for the past two years. The last thing it needed was another jolt to confidence from the recent sharp rise in energy prices , soaring geopolitical risks and the threat of another sharp downturn in global trade flows. The latest batch of global purchasing managers indices (PMIs) for manufacturing are starting to show new signs of stress. There is probably worse to follow, especially if there is no let-up in the Ukraine conflict. As the epicentre of global manufacturing, China is already beginning to feel headwinds buffeting the economy. The big question is whether Beijing needs to amend its growth target of around 5.5 per cent for this year or commit to bigger economic stimulus instead. It is early days, but business confidence is starting to falter. There is not only the fallout from the Ukraine crisis but also China’s new wave of Covid-19 flare-ups, which have sparked concerns about further disruption to domestic growth. The measures of manufacturing PMI from the National Bureau of Statistics and Caixin S&P Global are showing signs of duress. Their headline gauges have fallen below the critical 50 boom-bust threshold, pushing business activity into contractionary territory again. The official NBS manufacturing PMI fell from 50.2 in February to 49.5 in March , while the Caixin PMI suffered a bigger drop, from 50.4 in February to 48.1 in March , its weakest reading since February 2020. More bad news seems set to follow. Caixin reported that the Covid-19 flare-up had disrupted manufacturing supply chains and production in several regions across China. Demand for consumer goods has weakened, while expectations for new export orders hit its lowest level in 22 months. Meanwhile, inflationary pressures are increasing, not least because the Ukraine crisis and the international sanctions levied on Russia have posed additional strains on global supply chains, pushing up commodity price rises even faster in the process. It is all bad news for the world economy if weaker demand, supply shortages and higher prices continue to bear down on global optimism. International forecasting bodies such as the Organisation for Economic Cooperation and Development are already paring back expectations for global growth this year. The OECD considers that if the impact of the Ukraine war on world trade and commodity prices is sustained, it could reduce global growth by more than 1 per cent this year from the 4.5 per cent forecast for 2022 made last December. The world economy faces severe challenges, not only from the shock to future growth but also the probability that global consumer price inflation could be much higher than the 4.2 per cent forecast that the OECD originally pencilled in for this year. Judging by the way headline inflation rates have surged, the OECD’s assessment seems too conservative. It is a matter of conjecture how bad things will be for China in the next few months. At the height of the Covid-19 crisis in the first quarter of 2020, the official manufacturing PMI sank to as low as 35.7 , dragging China’s economic growth rate into negative territory to the tune of a 6.8 per cent year-on-year contraction. It will take some quick policy intervention to ensure Beijing’s 2022 growth objective stays on track as global economic conditions worsen. Lower interest rates are not an option considering the impending global inflation threat and the need to stiffen monetary policy to block off any imported cost-price pressures. The alternative is to push for a more radical version of Beijing’s “ dual circulation” strategy , mitigating international risk factors and pressing ahead with much more robust domestic recovery. It will mean scaling up Beijing’s fiscal expansion plans with higher deficit spending, more tax cuts to boost consumption and investment, and a much bigger government debt pile. That is a price worth paying to underpin faster domestic growth. China’s budget deficit target for 2022 is expected to be around 2.8 per cent of gross domestic product, compared to last year’s target of around 3.2 per cent. A more ambitious plan closer to 2018’s 4.6 per cent deficit-to-GDP ratio would clearly help. Beijing’s 5.5 per cent growth goal can be achieved, but it needs more resources to succeed. David Brown is the chief executive of New View Economics