PIMCO predicts that China’s deflationary pressures could spread to global markets, potentially helping Western central banks contain inflation.

The consumer sector plunged into deflation in July, and factory-gate prices fell.

PIMCO Economist Tiffany Wilding suggests that the economic downturn could lower inflation in China and markets served by Chinese exports.

Persistent deflation in China would likely spill over to developed markets, as a weaker yuan and higher inventory-to-sales ratios lower the cost of Chinese goods abroad.

Oxford Economics lowered its 2023 China GDP growth projection to 5.1%, warning of a paralyzed property sector and weakening trade.

The government’s policies in the coming months will determine deflationary pressure, with adequate fiscal stimulus to boost domestic demand potentially reaccelerating inflation or causing a downward spiral.