• Consumption Trends – October’s retail sales growth, once adjusted for inflation, shows persistent weakness in consumer spending. The outlook is not bright. Recent COVID outbreaks in China, and now the threat of a new COVID variant mean that stringency measures are here to stay for the foreseeable future. Declining home sales and slow job creation are also key headwinds for consumer spending. We don’t expect consumption growth to gather pace anytime soon.

• Trade Trends – Customs data from October show that China’s strong export growth continues, but price increases are now contributing more than volume growth to the trendlines. If the new COVID variant further postpones the “normalization” of the global trade environment, outsized demand for Chinese exports should continue into 2022.

Implications for Business

The pandemic remains the key risk for the global economy. If the new COVID variant, “Omicron”, impacts the global economy and supply chain as the Delta variant did, then the gap between surging demand and a lagging supply will last longer than expected, so will global inflationary pressures. The new variant threat may also slow the unwinding of monetary supports in advanced economies. For China, this means the outsized export demand enjoyed over the last 18 months or so should hold up longer; and, if so, would likely buoy investment in export-oriented manufacturing sectors. The enduring COVID threat will also see strict Zero COVID stringency measures and mobility restrictions persist in China. This, in turn, will continue dragging on consumption. All eyes are now on Omicron’s progress and prognosis. Members should closely monitor the evolving situation and make contingency plans, both upside and downside, for short-term assumptions for inflation, exports, and domestic consumption.