The low labor cost in China has enabled the economy of the country to focus on producing more with small costs to export things to all other countries. The plan has been working perfectly fine until the pandemic when all central banks decided to print money to feed people at home so they do not spread the virus.
The worst side of the excessive money printing, quantitative easing, by the central banks create a long lasting inflation problem all around the world. Since 2022 until Q2 2024, the hottest topic we have been discussing is the sticky inflation in the prices of assets.
Though the interest rate cuts started to occur like it happened in the U.S, Canada, European Central Bank and many other economies, it might be already too late as the recession might be already among us!
Worse Than Inflation
The reason why the central banks are taking big steps is due to the chaotic era that may come true if the recession becomes the new paradigm in the world. If the trades cease, prices drop and the societies start to rise against the increasing jobless counts, then the governments cannot control all of these problems at once.
Thus, absurdly big actions should be welcomed knowing that the recession has almost no good for us. The biggest concern about the recession is that you may not be able to convince the producer; the traders to spend more on the goods as before so that the whole system recovers.
Besides, the recession data is received slowly over a long time. To confirm that we are in a recession, we need to wait for 2 consecutive quarterly reports which indicate the slow down in the whole economy. IMF Basics - Recession guideline focuses on the decline on Gross Domestic Products IGDP) for at least 6 months according to the general recognition.
Either soft or hard landing, the trend has started as the FED took an important action with a 50 bps interest rate cut. China wants to hit the target level of 5% growth in 2024 and we can expect the Chinese central bank to support the stock market with some purchases and more loan options to stimulate the market.
If China achieves its goal of 5% and gets over the risk of recession, the whole world may become more greedy and put more money in risky markets. The results of the dovish sentiment in China may directly impact your pocket 😉
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