Categories: Economic News

China’s surprise rate cut and economic slowdown send oil prices tumbling

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Oil prices fell on Monday after China’s central bank unexpectedly cut rates after data showed economic activity slowed broadly in July, including consumer spending and factory output, rekindling concerns of a global recession.

Signs of further cooling in the world’s second-largest economy, already tarnished by China’s zero-covid policy and a housing crisis, alarmed energy markets. The prospect of lower demand sent oil prices down 5 percent, pushing West Texas Intermediate crude to $87 a barrel.

Data in July indicated that the post-lockdown recovery is fading amid a range of economic challenges, including the lingering threat of the coronavirus pandemic. Similar to the conflicting priorities facing central banks in other nations, Chinese officials are watching rising debt and inflation. But a crumbling domestic economy seemed to take precedence.

“The [People’s Bank of China] seems to have decided it now has a more pressing problem: the latest data show a lackluster economic pace in July and a slowdown in credit growth, which has been less responsive to policy easing than during previous economic downturns.” said Julian Evans-Pritchard, an economist who covers China for the economic research firm Capital Economics

China’s move to stimulate the economy through monetary policy put Wall Street in a sour mood. The Dow Jones industrial average fell 38 points or 0.4 percent to start the trading session. The broader S&P 500 lost 16 points, or 0.4 percent, while the tech-heavy Nasdaq fell 34 points, or 0.3 percent.

The People’s Bank of China cut its medium-term lending rate to 2.75 percent, or 10 basis points, the first cut since January. The move came as new data showed a slowdown in the national economy as policies designed to contain Covid-19 infections and a housing crisis slowed growth.

“The momentum of economic recovery has slowed down,” government spokesman Fu Linghui said at a news conference, the Associated Press reported. “Further efforts are needed to consolidate the foundations of economic recovery.”

For months, some homebuyers in China have refused to pay mortgages on properties they have bought but developers have not yet finished building. The mortgage protests are tied to more than 100 projects behind schedule, leading to falling home prices and frustrated buyers. The boycotts have raised concerns that the property market in China could collapse, undermining the country’s financial system and dealing a blow to the global economy.

For more than a decade, construction and real estate have helped fuel China’s stunning economic growth and bolstered an emerging middle class, underscoring the importance of the subprime crisis and the damage a crisis could unleash on estuary.


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