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Macroscope | What China’s new infrastructure plan, Fed interest rate rises and yen weakness mean for the world
- While a hawkish turn in US monetary policy is driving the value of the dollar, China’s plan to boost spending is likely to raise the price of dollar-denominated commodities
- As a result, countries that must purchase US dollars to buy commodities may find themselves in a dilemma
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China’s economic heft means that any economy-boosting measures that Beijing rolls out will have ramifications for US dollar-denominated commodity prices. But never more so than when, as now, commodity prices are already high, driven by a global post-pandemic economic rebound and, more recently, by supply reorientations occasioned by Western reactions to Russia’s invasion of Ukraine.
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Add in tighter US monetary policy, which ordinarily enhances the dollar’s allure to investors, and alarm bells should start to ring around the global economy.
No one should be under any illusions. The decisions made in Beijing and Washington in regards to the Chinese and US economies will have knock-on effects worldwide, which many countries will find hard to handle.
China remains wedded to its dynamic zero-Covid policy and is equally determined to use its fiscal and monetary toolbox to mitigate the economic impact of coronavirus containment measures. Data released on Saturday, showing China’s official manufacturing purchasing managers’ index at 47.4 in April – down from 49.5 in March and the lowest reading since the beginning of the pandemic – underlines the gravity of the situation.
It is against this backdrop that the unveiling of new infrastructure investment plans last week by China’s Central Financial and Economic Affairs Commission, after a meeting at which President Xi Jinping presided, should be viewed.
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Meanwhile, in the United States, more evidence of rising prices emerged in data released on Friday showing a March increase of 6.6 per cent year on year in the Personal Consumption Expenditures (PCE) Price Index, the biggest jump since January 1982.
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