Global Economic Outlook – September 2022 Exports have remained resilient. Driven by strong external Inflation has remained low in China compared to many demand, China’s exports were up 18% in July and increased parts of the world, but it may see some upward pressure 14.6% in the first seven months of the year. July’s trade in H2. Food accounts for nearly 30% of China’s consumer surplus hit a record high, exceeding USD 100 billion for the price inflation (CPI) and the cyclicity of pork prices is an first time. The bilateral trade between China and ASEAN important factor behind inflation fluctuations. Driven by has further strengthened since the RCEP agreement took recent increase of pork prices, CPI rose by 2.7% in July, up effect at the beginning of the year. With easing supply from 2.1% in May. In September, China released state pork chain disruptions and production ramp-up, Southeast Asian reserves to ease pork prices. Excluding food and energy, countries are increasing their demand for intermediate core CPI remains muted as the consumption recovery stays goods from China. Exports of new energy products such weak. We expect overall inflationary pressure to remain in as solar cells and lithium-ion batteries also saw strong check in 2022. Meanwhile, producer price inflation (PPI) momentum. Looking ahead, we expect exports’ strong continued to moderate from a high base, slowing from growth to moderate in H2, due to both high bases and 6.1% in June to 4.2% in July. slowing global growth. With the easing of Covid infections and relaxing of social We expect China’s fiscal and monetary policy to remain distancing requirements, as well as the government’s supportive. After announcing a set of 33 supportive continued support measures, Hong Kong (SAR)’s economy measures at the end of May, the government introduced showed a sequential improvement in Q2. Real GDP another 19 measures in August to bolster growth. Utilizing growth contracted at a moderate pace of 1.3%, narrowing the remaining balance accumulated from previous years, from -3.9% in Q1. As Hong Kong has adopted a pegged it announced a new RMB 500 billion quota in LGSBs to exchange rate with the USD, the government raised its support local government spending. The new quota is interest rate to 2.75% in lockstep with the U.S. Federal expected to be fully issued by October. In addition, on top of Reserve’s rate hikes. Monetary tightening and a global the RMB 300 billion policy bank bond issuance announced economic slowdown may weigh on Hong Kong’s recovery. in June, the government added another RMB 300 billion Looking ahead, we expect Hong Kong’s economic growth to bond quota, which can be used as equity capital for key continue to recover in H2, but challenges also remain. infrastructure projects. On the monetary side, the central bank reduced the policy Kevin Kang, PhD rate (medium-term lending facility, MLF) in August again, Chief Economist, KPMG China after cutting it in January. It also used special relending facilities to provide direct credit support to small and medium enterprises (SMEs), green investment and the transportation sector. © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 22