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Global Markets Are Feeling The Ripple Effect of a Slower Chinese Economy

Daniel Plainview

Updated: July 29, 2022

Economic China
Editor’s Note:

EDITOR’S NOTE: China is not only the largest exporter of high-tech products in the world, but it’s also the largest consumer. So, when its economy slows down, every other major economy in the world feels it. Earnings from multinational businesses have begun to note softening demand from the Eastern giant. The country is still dealing with a recent Covid lockdown on top of a housing market crisis. As the US market rallied yesterday despite news that GDP contracted a second month in a row, any reasonably-minded investor with a global perspective would question how China’s woes would affect the global economy. And a smart one would have already hedged whatever outcome lay before us.

Global companies are feeling the impact of a slowdown in the Chinese economy, Hope writes.

Why it matters: China is not only the largest consumer market in the world, but it also remains a key component of global supply chains.

  • But the Fed has warned that the country's current troubles — housing market upheaval, regulation and continued COVID-related lockdowns — would spread.

Driving the news: Chinese leaders held their quarterly economic meeting on Thursday and "all but acknowledged" that their annual GDP growth target would not be met, WSJ reports.

  • Meanwhile, several multinational brands and conglomerates reporting earnings from the second quarter have all cited weakness from the Chinese market as a challenge they've either been hindered by or have to overcome.

Details: Apple, which derives close to 20% from the "greater China region" (which includes Taiwan and Hong Kong), reported a 1% decline in revenue from the area from the same period last year, which was better than feared.

  • Earlier in the week, Adidas cut its financial forecast for the year because it had previously assumed there wouldn't be any more "major" COVID-related lockdowns in China.

The big picture: Goldman Sachs issued a new earnings growth forecast this week for large and mid-cap companies in China of 0%, down from 4%.

💭 Hope's thought bubble: Because Chinese leaders did not signal any change to their zero COVID policy today, multinationals will likely continue to hit bumps until vaccination rates in the country improve.

Go deeper.

Originally published on Axios.

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