Worst may be over: China’s economy to avoid “Japanese-style” deflation

Chinese prices are improving, offering additional indication that the worst may be over for the world’s second-largest economy and reducing worries about Japan-style deflation for the time being, according to a “World Economics” poll.

According to “World Economics,” which created the worldwide purchasing managers indexes currently owned by S&P Global, the all-sector price index touched 50.9 in September, the highest level in 14 months.

“This suggests that concerns about Chinese price deflation ushering in a period of extremely low or negative growth were exaggerated,” said “World Economics.”

Since April, China’s economic recovery has slowed as trade has slowed and a housing crisis has weighed on demand, building activity, and overall confidence. It fuelled fears that China may face a “balance sheet slump,” as Japan had done decades before.

In such a case, families and companies begin to pay off debt rather than invest or spend in the economy, resulting in a prolonged period of deflation and economic sluggishness.

The World Economics survey showed the services sector is leading the recovery, with the price gauge rising to 53.2 in September.

The gauge for manufacturers remained below the 50 mark, indicating contraction, but at 49, it was the highest in eight months, according to the statement.

Meanwhile, the all-sector sales growth index rose to 53.1, bolstered by a five-month high in the services sector, while the manufacturing industry was at best flatlining, according to the poll.