New focus on global instability. What does war mean? The conflict between Israel and Hamas in the Middle East has opened another crack in global growth forecasts. Financial analysts are now examining the economic consequences this could bring. War and ongoing geostrategic tensions between China and the United States compound the strain, challenging forecasts from investment banks that were already uncertain. Generali Investments has highlighted the early warning signs of a situation that overshadows growth and heightens uncertainty.
Yet, the Generali report released on Monday notes that the slowdown in China’s economic expansion stands as the most worrying element, with the strongest impact on world economic development in the year ahead. In the Eurozone, analyses continue to foresee a moderate recession in Germany and stagnation across many other countries. The Chinese real estate crisis marks a clear deceleration, contradicting a growth path that had depended on Asia’s rapid expansion. A 4 percent growth rate for China may seem normal, but it signals a global science-like slowdown—the weakest pace since 1990, excluding the pandemic year 2020.
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From a statistical standpoint, the real estate sector in China represents roughly 7% of GDP. When all sub-sectors are counted—building materials, road transport, real estate support companies, and consumer durables—the real estate crisis would touch about a quarter of the world’s population in terms of interaction with Chinese GDP. The volume of mortgages outstanding in China is also substantial; Eurizon data places it around 29% of GDP. A real estate crisis could have far-reaching effects on the financial system. The total value of the real estate sector, including private and commercial properties, accounts for about 220% of GDP, making it the world’s second largest sector by value. This comparison sits at around 165% in the United States and 360% in the United Kingdom.
Oil Prices
The primary positive note from the China slowdown is its potential to temper energy prices that previously fueled conflicts in Ukraine and Israel. A slower Chinese demand tends to reduce oil consumption. In this framework, the pace of Western economic cooling will rely more on monetary policy than on the energy bill and imports—unless an unexpected disruption blocks the Suez Canal.
Julius Baer analysts have noted that the latest Chinese data suggest growth stability could improve by September. They stated that the third-quarter GDP report may show a mild slowdown in activity, with July softness and a stabilization trend as summer ends, signaling a firmer footing toward quarter-end.
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Evolution of the economic picture shows that Western central banks now face a delicate balance. Policymakers must manage faltering growth with the risk of excessive tightening while keeping price increases in check. High wage gains, if they occur, must align with competitiveness. Productivity remains driven not by low wages alone but by selling high-value, high-priced goods and services. Persistently undervalued templates risk lowering quality and reducing competitiveness over time.
The surge in energy costs, driven by OPEC+ production cuts, further complicates the outlook. Long-term inflation expectations continue to challenge the credibility of central banks’ 2% targets. Generali experts believe that, while major Western central banks may have reached peak rates, they will likely maintain restrictive policies for longer, dampening the recovery trajectory for 2024.