China Inflation and German Exports Signal Global Slowdown

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from 24/7WallStreet:



China Inflation and German Exports Signal Global Slowdown
Posted: August 9, 2011 at 6:26 am


Two events, a world apart, signaled that the global slowdown has begun in earnest, if it ever ended at all. The National Bureau of Statistics in China announced inflation of 6.5% for July, a 3-year high. The Federal Statistics Office of Germany reported that exports fell 1.2% in June. Neither taken on its own would mean much. Together, they are trouble for the second and fourth largest economies in the world.

China’s response to inflation is to tighten bank loan activity. The People’s Republic hopes that tightening will not slow its 9% plus GDP improvement, but it is nearly inevitable that a lack of ready capital will. The availability of capital has been at the core of the ability of Chinese manufacturers to build new facilities, pay new workers and buy inventories. It is also believed that the Chinese middle class has had increased purchasing power due to access to credit. The consumption of that middle class is nearly as important as China’s exports to the nation’s expansion.

Germany has been the only successful economy in Europe, if GDP growth and exports are the best measure. Sales of a range of things from German cars to technology created by huge firms like SAP (NYSE: SAP) have driven exports higher. Contraction of German export levels is almost bound to mean that global demand for high-end consumer and enterprise products has begun to flag.

China’s and Germany’s problems are quite different, although each means the global economy is not healthy. China’s inflation probably says that its demand for commodities like oil, metals and grains has increased. That will probably cause some level of inflation elsewhere. China’s needs cannot be satisfied simply by a growth in agricultural products and crude. Production of these things has not grown in any significant way. The West may be in the midst of an economic contraction, and China’s appetite could cause that to be coupled with inflation, which is another enemy of a recovery. .............(more)

The complete piece is at: http://247wallst.com/2011/08/09/china-inflation-and-german-exports-signal-global-slowdown/#ixzz1UWxlIkAs

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