Beijing faces a dilemma. Domestic demand has stalled, but inflationary pressures persist. The authorities may find a policy solution difficult to engineer, says Diana Choyleva, economist at Lombard Street Research.
She says China’s latest money supply and industrial production data have confirmed the message from Monday’s trade numbers: the sharp slowdown has already started, with domestic demand taking the brunt of the adjustment.
“China is at the worst point of the cycle at present,” Ms Choyleva says. “Output growth is likely to be significantly below trend this quarter, but the economy is still operating above its potential and inflation is accelerating.”
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