What affects the global economy?

The reopening of the Chinese economy will affect inflation. But in what sense?

I recently had a heated argument with my friend Kevin. He is originally from China. And I’m pretty sure “Kevin” is his American name.

We’ve been talking about the Chinese government’s decision to reverse its ‘zero Covid’ policy and how it will affect inflation, the global economy and certain market segments.

I think these changes will boost inflation over the next few quarters, while Kevin thinks the reopening of the Chinese economy will have a deflationary effect on the rest of the market.

I wish you could be a mouse to participate in this discussion. You would appreciate the transition of weapons!

Today, I want to share this discussion with you and highlight some of the opportunities that the reopening of China’s economy will bring.

The inflation argument

Here’s why the reopening of China’s economy is thought to lead to another surge in inflation in the global economy: China’s population is now estimated to be over 1.4 billion people.

This is a significant part of the world’s population.

The standard of living of most Chinese citizens has risen quite rapidly over the past 20 years, which means that Chinese households are buying more goods and more services per capita.

In other words, Chinese consumption can boost global demand.

This applies not only to essential goods and services such as food and energy, but also to clothing, airline tickets, hotel rooms abroad, online services, health care and many other products and services.

Now that China has eased its strict quarantine and lockdown measures, Chinese citizens will be free to resume more normal lives and spend their money on more goods and services.

Imagine what will happen when 1.45 billion people start buying more products and services…

All this demand will contribute to the strengthening of inflation, a problem that is already troubling economies around the world.

That’s why I warned about natural resources like oil, natural gas, copper, iron ore, even gold and silver.

Because now that the Chinese economy is recovering, I think the demand is going to push the prices of these resources up a lot.

However, Kevin made some very convincing arguments. Here’s what he thinks…

The deflationary argument

Kevin made an important point: China plays a major role in several key links in the global production chain.

Almost every physical product you can buy today has something to do with China. China’s manufacturing sector makes everything from high-tech computer chips to Christmas presents for your children or grandchildren.

However, supply disruptions in the global manufacturing chain largely explain the rise in inflation at the start of the year. Shortages of essential products like mobile phones, clothing, auto parts and many others have mechanically increased prices.

However, now that China’s economy is returning to normal, these supply issues will make it easier (and cheaper) for retailers to restock high-demand products. We are already seeing this phenomenon in large supermarket chains such as Target and Walmart in the United States. The price of consumer goods is falling.

Therefore, Kevin makes a valid point when he argues that the reopening of the Chinese economy could lead to lower prices, thus reducing inflationary pressures.

It all depends on the nature of the pockets of inflation

Frankly, we could both be right in this argument.

The reopening of China’s economy will undoubtedly lead to higher commodity prices such as oil, natural gas and base metals. Because the demand for these materials will increase as the Chinese economy develops.

It would be good to buy stocks of energy producers, industrial metals producers, equipment manufacturers, precious metals producers, airlines and hotel companies. These values ​​will allow you to take advantage of the acceleration of inflation and make money.

But at the same time, the reopening of China’s economy could make many goods more affordable. If you’re in the market for a new car, laptop, or running shoes, that’s good news.

I hope that the prices of these consumer products will decrease next year. This could prompt the Fed to raise rates less aggressively.

Undoubtedly, many uncertain areas still remain, and therefore I am happy to count you among the Azerbaijani community. Chronicle of the Agora. Throughout 2023, we will be closely monitoring the inflation debate. My team and I, along with other experts in these columns, will continue to research the market for the best opportunities to grow and protect your capital.

As always, we’ll try to identify income-generating investments that offer steady cash flow that you can use to pay for your living expenses.

If you don’t need that extra money, it would be better to reinvest your investment earnings in new opportunities. This allows you to diversify your investments and make money even when the markets are down.

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