Bank of the Philippines governor warns of a repeat of the Asian financial crisis amid energy shocks

Chinese exports jumped more than expected in September, putting the country on track to record a record annual trade surplus, at a time when pressure is mounting from the United States and the European Union to rebalance trade relations, amid Beijing’s continued reliance on foreign markets to compensate for weak domestic demand.

Data from the Chinese General Administration of Customs showed, on Wednesday, that exports rose by 36.3 percent year-on-year, exceeding the expectations of analysts surveyed by Bloomberg for an increase of 25.7 percent. Imports also rose by 31 percent, with the second largest economy in the world recording a trade surplus of $133.5 billion during the month, the largest since January 2025.

Thus, China's cumulative trade surplus from the beginning of the year until the end of September rose to $938.1 billion, putting it on track to exceed the record level of $1.2 trillion recorded last year.

The strong performance of exports reflects Beijing's continued reliance on external demand to achieve the annual economic growth target of between 4.5 and 5 percent, in light of relatively weak domestic demand, as retail sales rose only 0.4 percent on an annual basis in August.

Increasing trade pressures

The boom in Chinese exports is sparking increasing reactions from its major trading partners, especially the United States and the European Union, which are seeking to reduce trade imbalances with Beijing.

Chinese shipments to the United States rose by 39.6 percent during September, compared to low levels in the same month last year, after trade between the two countries declined following the imposition of mutual punitive customs duties.

Chinese exports to the European Union also increased by 25.3 percent, while imports from the bloc's countries remained stable, pushing China's trade surplus with the Union to new levels.

European officials described the bloc's trade deficit with China, which exceeds one billion euros per day, as "unsustainable," pledging to work to rebalance trade relations.

In this context, Chinese and European trade officials last week reached an agreement to limit Chinese hybrid car exports to Europe. But analysts believe that the agreement covers a limited share of bilateral trade, with the possibility that Brussels will expand the restrictions to include other strategic sectors.

Nguyen Hoang Nam, an economist on China at Capital Economics, said that the expansion of European restrictions may have a limited impact on the Chinese economy, according to the institution’s estimates.

On Wednesday, the markets are awaiting the release of US inflation data for September, amid expectations that the rise in consumer prices will accelerate to 3.6 percent on an annual basis, from 3.4 percent in August, driven by an increase in gasoline and food prices, at a time when the expected slowdown in core inflation may give the Federal Reserve room to keep interest rates unchanged at its meeting this month.

Economists polled by Reuters expected the consumer price index to rise by 0.6 percent in September, after increasing by 0.4 percent in August, raising the annual inflation rate to 3.6 percent, compared to 3.4 percent in the previous month. Gasoline prices were expected to contribute about three-tenths of a percentage point to the monthly increase, after jumping 7.1 percent during September, according to data from the US Energy Information Administration.

Food prices are also likely to have risen by at least 0.2 percent, after monthly increases of 0.1 percent during each of the previous two months.

In contrast, the rise in the core CPI, which excludes food and energy, is expected to slow to 0.2 percent in September, from 0.3 percent in August, as the impact of the previous increase in mobile phone service prices fades. However, this potential slowdown does not necessarily mean a decline in living pressures, as fuel and food prices remain the most prominent in families’ daily spending.

Sung Won Son, professor of finance and economics at Loyola Marymount University, said consumers are directly feeling the rise in food and energy prices, noting that lower-income families bear the brunt of these increases.

The data comes at a time of increasing fears that rising energy costs will be transmitted to other sectors, with expectations of an increase in airline ticket prices, continued pressure on service prices, and the possibility of rising diesel prices being reflected in the costs of transporting goods and their prices in stores.

Interest is under test

Inflation data is of particular importance to monetary policy, after the Federal Reserve raised the benchmark interest rate last month by 25 basis points, to a range between 3.75 and 4 percent, the first increase in three years, indicating the possibility of continuing to raise borrowing costs in the coming months.

But weak job growth in September, coupled with slower-than-expected PCE inflation readings during July and August, reduced the odds of a rate hike at the October meeting. The markets were pricing in a probability of about 22 percent for a rate increase during the meeting on October 27 and 28, according to the CME Group’s “Feed Watch” tool.

Scott Anderson, chief US economist at BMO Capital Markets, said that keeping the monthly increase in core inflation at 0.2 percent may be enough to keep interest rates unchanged in October, but it will not resolve the debate about the need for further increases later. Economists' expectations indicated the possibility of raising interest rates again in December.

An expected increase for Social Security beneficiaries

The importance of September's data extends to millions of retirees and Social Security beneficiaries, as CPI data for urban wage earners and white-collar workers during the third quarter is used to determine the annual increase in benefits for 2027.

The Senior Citizens Association, one of the largest American organizations concerned with this category, expects the cost of living for beneficiaries to increase by 3.5 percent in 2027, compared to 2.8 percent in 2026. This increase would raise the average monthly benefit for retirees by about $67.90 to 2007 dollars.

The President of the European Central Bank, Christine Lagarde, called on France to address its debt crisis by controlling public financial conditions, practically ruling out reliance on central bank intervention to calm bond markets, at a time when monetary policy makers in the euro zone face a complex equation between containing inflation driven by rising energy prices and the repercussions of increased borrowing costs on economic activity.

Lagarde said, during an event organized by CNN in Bangkok on the sidelines of the annual meetings of the International Monetary Fund and the World Bank, that the main solution to French financial problems “lies within France,” stressing that fiscal policy is the first gateway to addressing the pressures facing the country.

French government bonds are under pressure as part of a global selling wave, amid investors' fears that political tensions ahead of the presidential elections scheduled for next year will obstruct the government's efforts to reduce the high budget deficit.

Lagarde's statements come at a time when speculation is increasing about the possibility of the European Central Bank resorting to buying French bonds through the Monetary Policy Transmission Protection Tool, which allows intervention in specific circumstances when the bank deems that market pressures are unjustified or disorderly and threaten the transmission of the impact of monetary policy to the euro zone economies.

Regarding the inflation file, Lagarde said that the rise in prices in the euro zone is due largely, although not exclusively, to the increase in energy prices resulting from the war with Iran. She added that there are no indications yet that the pressures are shifting to a broader wave of price increases, but the bank is monitoring early signals, including the demands of trade unions during wage negotiations, in anticipation of the effects of the second round of inflation appearing.

She explained that the bank cannot wait until these effects become fully clear before taking action, noting the importance of monitoring indicators that may warn of the transmission of rising energy costs to wages and other prices.

In reference to the continued tendency towards tightening monetary policy, European Central Bank Governor Pierre Funche said, according to what was reported by Bloomberg, that the bank may likely have to raise interest rates again, but he pointed out the difficulty of ascertaining the next path in light of the uncertainty related to energy prices, as well as developments in the field of artificial intelligence.

The European Central Bank has raised interest rates twice over the past four months, while markets expect another increase in December.

But rising government bond yields and borrowing costs may in turn affect the bank's decisions. The Governor of the Central Bank of France, Emmanuel Moulin, said that increasing long-term yields could affect the bank’s response to inflation, as high financing costs already play a role in curbing demand, which may justify a less severe monetary response to the shock of rising prices.

In terms of growth, Lagarde described the International Monetary Fund's expectations that the euro zone economy will grow by 1.1 percent during the current year as not ideal, but it is not a bad result either, noting that German government spending on infrastructure and defense continues to provide support to the economy.