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Analyst on stagflation threat, actual property market slowdown

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The risk of stagflation is “very real” in China in the next few quarters, as factory gate prices are rising faster and a persistent power shortage is weakening economic growth, an analyst said on Wednesday.

Stagflation describes a situation in which the economy experiences stagnant activity and accelerated inflation at the same time. The phenomenon was first recognized in the 1970s when an oil shock triggered a prolonged period of higher prices but sharply falling GDP growth.

In China, the producer price index rose 10.7% year over year in September – the fastest increase since October 1996, when data collection began. Meanwhile, blackouts across the country caused several major banks to cut GDP forecasts for China.

Such a situation made it difficult for the Chinese authorities to stimulate the economy on a large scale, said Charlene Chu, senior analyst for China Macrofinancial at Autonomous Research.

Chu told CNBC’s Street Signs Asia that incentives could increase demand for energy and worsen persistent electricity shortages. At the same time, factories that had to go offline several days a week due to the power shortage would continue to hurt economic growth, she suggested.

“Because of this, I think we are currently in a situation where there are many factors weighing on growth that are not going to go away anytime soon, and we are unlikely to receive aggressive Chinese incentives in the next few months,” said Chu. .

“That will be another dynamic for the world to adjust to,” added the analyst, explaining that the world is used to China stimulating its path out of various economic pressures.

No “crisis of confidence” in real estate

China’s economy faces numerous challenges. The year-over-year growth of 4.9% in the third quarter was the slowest in a year.

In addition to the power shortage that has affected factory production, a slowdown in the real estate sector has also dampened growth.

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Problems in China’s real estate sector have come to the fore in recent months as Evergrande and other property developers struggled to repay their debts. This was followed by a campaign by Beijing to curb excessive borrowing from property developers.

Chu said the slowdown in the real estate sector hit China’s economic growth “very hard”. But the country has not yet reached a point where confidence in the primary real estate market collapses, the analyst said.

“I don’t think the authorities are trying to create a confidence crisis in the entire development sector,” Chu said.

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