Azernews.Az

By Alimat Aliyeva

China’s producer deflation reached its highest level in almost two years in June, highlighting ongoing struggles within the economy as it faces uncertainty from the global trade war and sluggish domestic demand. These factors are putting increasing pressure on policymakers to introduce additional support measures, Azernews reports.

While consumer prices rose for the first time in five months, China’s housing market continues to suffer from a prolonged downturn, worsened by the tariffs imposed by former U.S. President Donald Trump on trading partners. As a result, economic growth remains tepid.

According to Reuters, producer prices fell by 3.6% compared to the same period last year, worse than the expected 3.2% drop. This marks the steepest deflation in Chinese factory prices in nearly two years.

In June, manufacturing activity in China shrank for the third consecutive month, although the pace of decline has slightly slowed. However, employment and new export orders remain weak, signaling ongoing struggles within the industrial sector.

“We expect demand to weaken further by the end of the year due to a slowdown in exports and the reduction of fiscal stimulus measures,” said Zhong Xuan, China economist at Capital Economics.

Weak domestic demand is driving companies to cut prices in an attempt to boost sales. This has prompted Chinese authorities to step in and end the aggressive price wars, particularly in the automotive sector, where companies have been slashing prices to stay competitive.

To further underscore the sluggish consumer market, Chinese e-commerce giants like Alibaba and JD.com have been offering large subsidies in recent months to spur the sale of fast-moving consumer goods, reflecting their struggle to generate sales in a softer economy.

On a more positive note, core inflation—which excludes volatile food and fuel prices—rose by 0.7% in June compared to the same period last year, marking the highest increase in 14 months. While this signals some price pressure, it remains well below the levels that might suggest a full economic recovery.

This complex economic landscape suggests that China’s recovery will depend heavily on the government's ability to balance domestic fiscal support, manage trade tensions, and steer industries toward more sustainable growth in the face of global challenges.