The World Is Slowing – Synchronized Global Slowdown In Full Swing

What the Data Say About China and the Global Economy: Short-term improvements don’t warrant long-term optimism – Mohamed A. El-Erian

The slowing of the Chinese economy, along with growing evidence of European growth under pressure, cast a big cloud of uncertainty over the global economy coming into 2019. Data released last week provided further support for the notion of short-term stabilization in China, but there isn’t yet a convincing longer-term case for higher growth, or for a less uncertain road for a global economy characterized by divergent performance among its most important economies.

For decades, China has skillfully used the global economy as a tailwind to leverage beneficial and powerful demand-and-supply transformations at home: From accessing foreign markets to expand production, income and employment, to importing and internalizing technological advances that enhance productivity and enable China to compete throughout the global value-added chain. These efforts have turbocharged the impact of the country’s impressive economic-policy management, which has pulled hundreds of millions of citizens out of poverty, driven high growth and turned the Asian powerhouse into the world’s second-largest economy.

More recently, however, this tailwind has turned into a headwind characterized by three distinct, yet reinforcing elements:

  • Chinese export markets have become less dynamic, particularly in Europe.
  • The U.S. has imposed tariffs on Chinese imports and threatened more in response to grievances (also shared by other countries) about China’s use of nontariff barriers and intellectual property theft.
  • Certain aspects of the initial implementation of China’s ambitious Belt and Road Initiative have led to growing concerns about the lack of transparency of terms and conditions, the worsening indebtedness of some of the most vulnerable developing economies, and even national security issues.

As headwinds from abroad are reflected in worsening domestic economic indicators, the Chinese authorities have opted for an aggressive set of stimulus policies, including expansionary monetary and fiscal-policy measures, as well as directives to state-owned enterprises. Essentially, there has been a return to a set of measures that were successfully used in the past to avoid a prolonged economic slowdown, including in the aftermath of the 2008 global financial crisis.

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