Q1 GDP Revised to -0.7

by Marilou Long on June 2, 2015

in Economic Indicators,Foreign Markets,inflation/deflation

 

As we mentioned in our Q1 quarterly letter, the strong U.S. dollar continues to impact exports and corporate earnings.  In addition, it appears that China is continuing to produce cheap goods even though demand has slowed.  This has produced a glut of goods for sale and put downward pressure on prices.  From the linked WSJ article:

A dozen years ago, low-cost workers from the countryside poured in to China’s factories, helping bring down the cost of everything from T-shirts to tricycles.

Then the country’s booming demand for commodities such as oil and cotton helped to reverse that downward inflation trend, as natural-resource prices surged. Now, China’s excess manufacturing capacity and slowing growth rate are changing the equation again, putting renewed downward pressure on prices.

Milk producers in New Zealand, coal miners in Australia and sugar growers in Brazil have been forced to cut their prices after finding they had overestimated commodity demand from China. At the same time, Chinese manufacturers, stung by their country’s economic slowdown and excess capacity, are flooding export markets with finished goods such as tires, steel and solar panels.

Global deflationary pressures emanating from China are symptomatic of wider demand issues gripping economies from South America and Europe to much of Asia. China is far from the sole cause of price weakness; others include new crude-oil supplies in North America and sluggish growth in Europe. But China’s sheer size, reach and central role in global manufacturing make it a potent force.

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