China is the only major economy dealing with deflation (2024)

FAQs

Is China's economy in deflation? ›

By that measure, China has already been in deflation for five straight quarters. The implosion of the housing market has put a drag on the whole economy. Property developers, and related sectors such as materials, have scaled back their investments.

One of the most prominent examples of deflation in recent times is Japan.

In 2022, the IMF judged the Chinese economy in PPP terms to be 23% larger than America. At the same time, using PPP data the World Bank estimated the Chinese economy to be 18.8% larger than America. And even the CIA considered the differential in favour of China at 16%.

China's low inflation shows a disinflationary process, propelled by a robust supply side recovery, coupled with sluggish consumer demand linked to the property market downturn, relatively lower wage growth and weak manufacturing exports. China stands out as an outlier amid the recent global surge in inflation.

Inflation has throttled back significantly since peaking two years ago. The U.S. economy is even seeing some prices deflate for consumers. Deflation measures how quickly prices are falling for a consumer good or service. It's the opposite of inflation, which gauges how quickly prices are increasing.

Many of the risks facing China's economy stem from its ailing real estate sector. For decades, China's economy was dependent on a booming property market driven by speculative investment returns. However, this growth was largely driven by debt.

Debtors are particularly hurt by deflation, because even as prices for goods and services fall, the value of debt does not. This can impact inviduals, as well as larger economies, including countries with high national debt.

Typically, deflation is a sign of a weakening economy. Economists fear deflation because falling prices lead to lower consumer spending, which is a major component of economic growth. Companies respond to falling prices by slowing down their production, which leads to layoffs and salary reductions.

1- United States: Located in North America, the United States is the world's third largest and most populous country. It has once again surpassed China to become the world's richest country.

Will China ever overtake the US? ›

Some analysts even argue that China's economy may never surpass that of the United States. When considering further the vast soft power and geopolitical advantages the United States holds over China, it appears unlikely that China will displace the United States as a leading global power in the foreseeable future.

The United States pays interest on approximately $850 billion in debt held by the People's Republic of China.

Deflation can lead to a vicious cycle where reduced consumption suppresses economic growth. Businesses might lower production and investment due to uncertain future demand, leading to increased unemployment. This further reduces overall consumption, creating a self-reinforcing loop.

Overall, the paper confirmed the hypothesis that inflation in China is largely driven by excess money supply, and is correlated with changes in food price level.

Russian Inflation Continues Climbing, Sets New 5-Year High

Prices have risen by 7.4% over the last year — almost twice the government's target.

China is in the midst of a profound economic crisis. Growth rates are flagging as an unsustainable mountain of debt piles up; China's debt-to-GDP ratio reached a record 288% in 2023.

The World Economic Forum's Chief Economists Outlook: May 2024, a survey of top economists around the world, also found that analysts broadly expect further growth in China. Of the economists surveyed in the report, nearly 75% said they expect moderate growth in China.

Economists fear deflation because falling prices lead to lower consumer spending, which is a major component of economic growth. Companies respond to falling prices by slowing down their production, which leads to layoffs and salary reductions. This further lowers demand and prices.

Local governments in China have incentives to over-report economic activity and the sum of local GDP estimates often exceeds the national alue. Local officials in China have an incentive to inflate their reports of investment and overall economic activity because they are rewarded for meeting economic growth targets.