Oil prices plummeted Monday after China’s central bank unexpectedly cut interest rates after data showed that economic activity slowed globally in July, including consumer spending and factory output, fueling concerns about a global downturn.
Signs of further cooling in the world’s second-largest economy, already smeared by China’s zero-covid policy and a real estate crisis, alarmed energy markets. The prospect of lower demand sent oil prices down 5 percent, pushing West Texas Intermediate crude to $87 a barrel.
July data indicated that the post-lockdown recovery is bubbling with a range of economic challenges, including the lingering threat of the coronavirus pandemic. Like the conflicting priorities facing central bankers from other countries, Chinese officials are looking at rising debt and inflation. But a sputtering domestic economy seemed to be prioritized.
“The [People’s Bank of China] seems to have decided it now has a more pressing problem: the most recent data shows weak economic momentum in July and a slowdown in credit growth, which reacted less to policy easing than during previous economic downturns,” said Julian Evans —Pritchard, an economist who covers China for the economic research firm Capital Economics
China’s move to stimulate the economy through monetary policy put Wall Street in a gloomy mood. The Dow Jones industrial average lost 38 points or 0.4 percent to start the trading session. The broader S&P 500 index lost 16 points, or 0.4 percent, while the tech-heavy Nasdaq lost 34 points, or 0.3 percent.
The People’s Bank of China cut the interest rate on medium-term loans to 2.75 percent or 10 basis points, the first cut since January. The move came as new data showed a slowing national economy while policies designed to contain Covid-19 infections and a real estate crisis brought growth to a halt.
“The momentum of economic recovery has slowed,” government spokesman Fu Linghui said at a news conference, the Associated Press reported. “More efforts are needed to consolidate the foundation of economic recovery.”
For months, some homebuyers in China have refused to pay the mortgage on properties they’ve bought but the developers haven’t finished building. The mortgage protests are linked to more than 100 delayed projects, leading to falling house prices and frustrated home buyers. The boycotts have raised concerns that China’s real estate market could collapse, undermine the country’s financial system and deal a blow to the global economy.
For more than a decade, construction and real estate have fueled China’s astonishing economic growth and bolstered an emerging middle class, underscoring the importance of the mortgage crisis and the damage an unraveling crisis could cause.