Macroscope | How China can protect its economy – and the world’s – amid US recession headwinds
- China, with its low inflation, can continue to boost its economy and stimulate demand, which will shore up the global decline
- Beijing just needs to keep its monetary policy prudent and look out for the yuan becoming too strong
The US economy was already overheating in November, when unemployment fell below the “natural rate” – the lowest sustainable level without creating inflation. Inflation had also surged, to nearly 5 per cent for the core consumer price index, which excludes food and energy prices, well above the Federal Reserve’s target rate.
But it was not until March that the Fed began to raise interest rates, which remain well below the “neutral rate” – a theoretical level at which Fed policy is neither accommodative nor restrictive. This delayed reaction has made US inflation worse and the wage-price spiral is becoming a reality.
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Shanghai tourist sites remain quiet after end of two-month citywide lockdown
China’s service sector has been badly affected by the pandemic and many urban residents saw their incomes shrink significantly. However, the ongoing tax rebates will stabilise demand with most households less able to spend.