Fears of the impact of Chinese Covid restrictions on global supply chains have seen stock markets across the western world fall, heightening the perilous state of the global economy.
Economies across the globe are already feeling the impact of rising fuel prices in the wake of Russia’s invasion of Ukraine, and the slowdown of production in China is only adding to those pressures.
Restrictions have been imposed in a number of major Chinese cities, often without prior announcement. Shanghai has seen some of the toughest rules, with most of the city shut down.
Authorities in Beijing today introduced compulsory testing in one neighborhood following a small outbreak of cases, and there are worries they will follow in Shanghai’s footsteps should the situation worsen.
Stock markets in the west reacted negatively to the prospect, as investors moved their money to vehicles unlikely to be impacted.
London’s leading FTSE 100 share index tumbled, with commodities firms leading the way. The index clawed back some of the morning’s losses but still closed 1.8% down.
Stock markets in France, Germany and the US all saw similar losses.
Scott Hill of Kusler group, who has spoken previously about the impact of Covid restrictions, said the reaction was no surprise given Europe’s dependency on China.
“Simply put, China is the world’s factory,” said Hill. “You shut down that factory and you’re going to have supply line issues.”
The impacts of course, are nothing compared to those felt by China itself, with the nation clinging to its zero Covid policies in spite of the financial impact.
Coupled with the crackdown on Big Tech and private enterprise, recent events have battered China’s economy, which is facing severe capital flight and a sharp devaluation of the yuan.
