China's economic challenges have given rise to deflationary pressures that present a 'global concern' and are likely to accelerate in the coming quarters, economists have suggested.
"Deteriorating Chinese economic fundamentals have produced deflationary pressures that are already moderating inflation both in China and in the global markets served by Chinese goods," Pimco's Wilding and Liao concluded.
The risk of more prolonged and pronounced inflationary pressure hinges on the government's fiscal policy responses in the coming months, they added, arguing that adequate stimulus to boost domestic demand may re-accelerate inflation while inadequate policy measures could give way to a "downward spiral."
Uncertainty over China's recovery potential has cast a dark cloud over global markets in recent weeks, and Deutsche Bank strategists Maximilian Uleer and Carolin Raab said in a research note Wednesday that the central bank's rate cuts and the government's promise of further fiscal stimulus have done little to soothe concerns in Europe.
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