“Made in China”: The hidden cause of Euro deflation


  • 13% of non-internal Eurozone imports are from China
  • Structural mismatch between Chinese manufacturing investment and Western demand means China is “exporting” deflation into the Eurozone

The Eurozone officially entered deflation this week, driven by falling oil prices. Paul Marson, Chief Investment Officer of Monogram, comments on the more concerning long-term structural driver of Eurozone deflation:-

While ‘Made in China’ is a common sight on manufactured goods, China also exports deflation. Chinese manufacturing goods supply is growing much faster than Western and Chinese demand for manufactured goods. This means a glut of supply which increasingly pushes down manufactured goods prices.

According to World Trade Organisation data, China accounts for 17.1% of the total increase in world merchandise export (excluding the Eurozone) from 2002-2012, hugely disproportionate to its size. This makes China a global price setter. In the past decade, the percentage of Chinese imports into the Eurozone has doubled, meaning that China is increasingly exporting deflation into the Eurozone.

Worryingly, Chinese monetary stimulus, which looks likely, will increase Chinese manufacturing investment, further exacerbating the problem.


Graph: Chinese manufacturing sector supply/ Western demand mismatch

Monogram Eurozone Deflation