China and Omicron are the wild cards for the global economy and financial markets

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China and Omicron are the wild cards for the global economy and financial markets: Lockdown restrictions will continue to disrupt global value chains and support rising inflation that will require aggressive rate hikes

The past two years have taught us that year-ahead predictions in times of Covid-19 — with successive new variants of the coronavirus of unknown severity — is a futile exercise.

This is a regime change and departure from ultra-loose monetary policy of the past decade and will probably result in a strong US dollar and market correction, given record high asset prices and valuations. As far as China is concerned, the big question is whether policy-makers there will be able to deflate the property market bubble without causing a significant slowdown in economic growth. So far, the evidence points in that direction, with industrial production slower because of power cuts, infrastructure investment moderating as a result of slow growth in credit to local government and the regulatory restraints to property developers.

 

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