On Monday (16), China released economic data for April. Retail sales and industrial production were much worse than analysts had expected. Even considering that important areas of the country have faced periods of lockdown so far, the results were considered bad by the market.
Retail sales fell 11.1% in April from a year earlier. The projection was for a fall of 6.1%. Industrial production fell by 2.9% compared to 2021. Expectations were for a slight increase of 0.4%. To make matters worse, the production of machinery and equipment and vehicles fell by 4.6%.
Auto production fell 41.1% in April year on year. The automotive sector in China accounts for about one-sixth of jobs and 10% of retail sales. This means a very strong blow to the economy.
According to the State Bureau of Statistics, the Chinese version of the IBGE, the causes were the return of restrictions due to Covid, weak demand and rising costs. Restrictions applied in April, particularly in the Shanghai region, forced factories to close or operate at limited capacity.
The unemployment rate in China’s 31 largest cities rose to 6.7% in April. Among young people aged 16 to 24, the rate was almost three times higher: 18.2%. The “increasingly bleak and complex international environment and the biggest shock of the Covid-19 pandemic at home obviously exceeded expectations, new downward pressures on the economy continued to build,” the State Bureau of Statistics said in a statement.
Bad numbers for China, but how important are they to your life here in Brazil? Huge.
China is a voracious consumer of the commodities that Brazil produces, especially iron ore and soy, and a major supplier of everything you can imagine to the United States, another major buyer of Brazilian products.
Bad data in China indicates weaker activity in the US economy, which is a clear sign of less economic dynamism around the world. This shows that the risks of a global downturn in the economy are higher.
The real is one of the currencies most sensitive to China. A scenario of rising interest rates in the United States strengthens the dollar in relation to other currencies. And, in this environment, a drop in Brazilian commodity purchases by China amplifies this movement.
It’s simple to understand why. The exchange rate is the price of one currency against another. The exchange ratio between the dollar and the real depends on the supply and demand of the American currency. With lower Brazilian exports, the supply of dollars decreases and its price increases. It becomes necessary to spend more reais to buy a dollar. And that puts pressure on inflation and forces the Central Bank (BC) to keep interest rates high for longer.
The next variable to watch closely is the pace of the Chinese and US economies. A sustained downturn in activity will have serious consequences for the Brazilian economy.
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