BCA Indicators/Model

China removed checks and balances in its political system to deal with a very dangerous economic transition. The transition is going badly, yet investors cannot rely on checks and balances to correct or prevent policy mistakes. The Taiwanese election is a looming bellwether.

We continue to expect China to deploy stronger fiscal and monetary stimulus to avoid prolonged deflation brought about by a liquidity trap and sub-zero growth. All the same, a lower-growth risk has been added to our ensemble forecast. We expect Brent to trade at $94/bbl in 2H23, and $120/bbl next year. WTI will trade $4 – $6/bbl lower.

The global economy will not enjoy an “immaculate disinflation” but will suffer a very maculate one due to China’s growth slowdown and restrictive monetary policy in the developed world. Investors should stay overweight low-beta assets.