It's a little cold this winter

1. It's a little cold this winter - Beixi's dilemma aggravates the "perfect storm" of European economy this winter

European inflation rose and growth expectations were further lowered—— The prices of natural gas, oil and coal tend to resonate, and the prices of energy and agricultural products are highly correlated. High frequency indicators show that many European countries have entered a technical recession. If NS1 is cut off, it will aggravate the energy crisis, economic recession pressure, external geopolitical pressure and internal social contradictions that plague Europe. Under the pressure of "civil protection", the actual production capacity of industries with high energy dependence in Europe may be compressed, such as chemical industry, construction, equipment, automobile, electronics, etc.

2. Energy shortage pushes up global inflation and depresses growth; Commodity trend differentiation

The impact of tightening energy supply on global inflation growth will be "mild" Europe in general. The rigid rise in energy prices has depressed the actual purchasing power, and the demand and profit margin of other commodities with relatively loose supply and large demand elasticity may be "squeezed out", such as black, non-ferrous metals, cement, and even optional consumer goods.

3. China cannot escape the global "stagflation" spillover effect, but its relative cost advantage is obvious

First of all, high global energy prices and rising food prices will raise China's inflation hub (see Economic Warming, but the combination of growth and inflation is still not ideal, 2022/07/4). However, as China's energy supply has less pressure on the world, especially Europe, the relative cost advantage has driven China's export share and surplus to rise rapidly, as well as to the EU - China's trade surplus in the second quarter was+70% year on year, and to the EU+66%.

4. Which industries in China may suffer greater profits and losses?

The industries where China's competitiveness may be relatively improved include the following five areas: 1) For the export products with high energy dependence, China has a greater comparative cost advantage, such as chemicals, equipment, some metal products, household appliances, automobiles, electronics, medicine, etc. 2) Under the "substitution effect" of low prices, China's exports to the EU benefit temporarily, such as automobiles, chemicals, pharmaceuticals, electronics, equipment, etc. 3) The development of new energy industry chain has been further accelerated. 4) Energy and agricultural products that benefit from the spillover effect of rising energy prices. 5) Export of heating appliances. However, if global growth sinks into a deeper recession, China's current comparative advantage in exports to the world and Europe may eventually be unable to offset the "counter trend" of total growth.

In addition, the relatively damaged industries are mainly: 1) downstream domestic products whose profits are squeezed by energy prices but cannot be exported; 2) Bulk commodities and industrial products greatly affected by the global recession; 3) If Europe falls into a deeper recession, the substitution effect of its imported consumer goods may eventually not offset the sharp contraction of demand; 4) Export to Russia.