The brewing US-Iran conflict is sending shockwaves through global markets, with skyrocketing energy prices threatening to upend China’s economic recovery. According to a detailed report by Modern Diplomacy, Beijing could escape deflation but slide into dangerous cost-based inflation.
Oil price surges are driving up costs for factories and suppliers, but weak consumer demand at home prevents price hikes. Businesses are eating the costs, which will further dent already struggling profits in China’s vital manufacturing hub.
Overcapacity plagues the sector, with about 25% of companies in the red due to cutthroat competition. Escalating energy bills mean less money for wages and expansion, signaling tough times ahead for employment.
Household incomes are barely budging. More than 50% of employees received no raises last year; others took pay cuts. Young people are hit hardest, battling record unemployment despite relentless job hunts.
This spending drought keeps demand anemic, starving companies of revenue. Exports, a cornerstone of growth, are vulnerable too—as global buyers cut back amid higher fuel costs.
Prolonged high oil prices could drag down GDP forecasts, experts say. China’s push into EVs and green energy provides some edge, but supply disruptions from the Middle East threaten to offset gains.
In essence, the report cautions of a looming stagnation: stuck between deflation’s grip and inflation’s squeeze, with slow growth and relentless cost pressures defining the new normal.