Here are the winners and losers

  • Bank of America says the effects of the economic slowdown in China are spreading globally and leading to multiple winners and losers.
  • Bank of America said that a weaker China helps reduce US inflation through a stronger dollar but may also lead to supply bottlenecks.
  • Meanwhile, some Latin American commodity exporters have been hit by the Chinese slowdown.

China’s economic growth is faltering, and its effects have spilled over to the rest of the global economy with mixed results.

According to Bank of America’s note to clients, China faces headwinds that will set the tone for the US, Europe and Latin America as it responds to the currency and commodity markets.

“Short-term factors include China’s non-proliferation strategy, deep problems in the real estate market and a weak labor market (particularly for young workers),” Bank of America analysts wrote on Friday. “Meanwhile, unfavorable demographics and low return on investment after years of rapid infrastructure development pose structural challenges to growth.”

we

China’s economic weakness provides good and bad news for the US. On the positive side, the Chinese yuan has weakened about 8% against the dollar over the past year due to large increases in Federal interest rates and expectations that the US economy will outperform others around the world.

This will help mitigate inflation in the United States, where research shows that a 10% appreciation in the dollar cuts PCE inflation by about 0.4 percentage points, Bank of America said.

US dollar yuan bank


BofA Global Research


However, China’s COVID-19 lockdown could burden US markets with supply chain disruptions. Shipments to the United States fell to their lowest level since June last year, which could point to new supply problems, Bank of America noted, which could add to the pressure on US commodity inflation.

Meanwhile, a weaker Chinese economy could eventually help the United States distance itself from its geopolitical rival.

According to Bank of America, “there is bipartisan pressure in the US to break away from China.” “While concrete steps have been taken in some sectors, overall trade data shows no clear signs of detachment.”

Europe

China mainly influences Europe through the demand for its exports and commodity prices. Bank of America explained that if China eases lockdowns, it could help ease supply bottlenecks in Europe and reduce price pressure on non-energy commodities.

But analysts said China would “contribute much less to the outlook risk balance than they would ordinarily contribute,” with a recession looming due to The worsening energy crisis.

“In the current background, the marginal impact of the slowdown in China on [Central and Eastern Europe] GDP will likely be limited, as Europe already faces the risks of production cuts due to gas rationing in winter.”

Latin america

The region has significant exposure to China, with Chile sending 40% of its total exports there while Brazil and Peru send around 30% of its total exports.

In the note, analysts said the Brazilian economy faces a mixed outlook due to slower growth in China.

“On the positive side, lower commodity prices have helped slow inflation this year from a peak of around 12% to 6.5% by the end of the year,” Bank of America said. “On the negative side, it affects the financial position of Brazil and the trade balance. Therefore, lower growth in China negatively affects Brazilian exports and growth – remember that China accounts for almost a third of total Brazilian exports, which is equivalent to about 5% of total Brazilian exports. country’s gross domestic product.

Since 2020, Brazil’s exports to China have fallen sharply, the data shows, and it will need to diversify its exports as China’s demand for commodities such as soybeans, iron ore, oil and beef declines.

Latin American Bank of China Exports


BofA Global Research


Likewise, Chile must bear China’s much weaker demand for minerals such as copper, whose exports account for 18% of Chile’s GDP.

“China is Chile’s main trading partner, receiving about 40% of Chilean goods exports,” Bank of America said. “Net exports to China account for approximately 2.5% of GDP, the largest share in the region.”

But Mexico appears to be benefiting as it gains market share in US manufacturing imports at the expense of China’s decline, Bank of America said.