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Page added on September 10, 2015
China leading world towards global economic recession
A “hard landing” for the Chinese economy will likely lead the world into a recession in the next year, Citi’s global economics team has warned.
Analysts at the Wall Street bank believe that a slowdown concentrated in emerging markets will drag down demand and see economic activity fall well below its potential across the world.
They anticipate the global economy to slide into recessionary territory during next year, and remain there for most of 2017. The chance of such a global recession now stands at 55pc, staff estimated.
Citi assigned a 15pc probability to the risk of a “severe recession”, in which the global economy enters a boom, overheats, and subsequently falters in dramatic fashion.
Willem Buiter, global chief economist at Citi and a former Bank of England rate setter, said “that there is a high and rising likelihood of a Chinese, emerging market and global recession playing out”.
The warning signs that foreshadow a recession in the world’s second largest economy are already evident. Recent episodes of “irrational exuberance” in China’s property and stock markets are “the classical recipe for a recession in capitalist market economies”, he said.
Mr Buiter identified excess capacity across much of China’s economy and a highly-leveraged private sector as troubling indicators of the squeeze to come.
Citi estimated that China is now growing at just 4pc, well below the numbers issued by its government statisticians, and the country’s official 7pc growth target. Other large economies – Brazil, Russia, and South Africa – are already in trouble.
Should growth in China slow further still, Mr Buiter said that “many other emerging markets, already weakened, will follow, driven in part by the effects of China’s downturn for their exports and, for the commodity exporters, on commodity prices”.
Mr Buiter said that China’s policy response had been “underwhelming”. It is “not a command economy … [but] like most real-world economies today, its is a messy market economy of the crony-capitalist variety”, he claimed.
Citi predicted that Beijing’s leaders will be unwilling to take more radical steps to shore up growth, stopping short of a more dramatic devaluation of the yuan. Li Keqiang, the country’s premier, said that China would not start a currency war.
Signs of global weakness have also been reflected in corporate earnings, growth and inflation rates, and trade figures – all suggestive of insufficient levels of demand. “Economists seldom call recessions, downturn, recoveries or periods of boom, unless they are staring them in the face,” Mr Buiter said. “We believe this may be one of those times.”
While the recession envisaged by Citi’s economists is one of only moderate depth and length, it would come at a difficult time for the world’s policymakers. Across many countries monetary policy is considered to be tapped out, with central bank interest rates close to – or even below – zero.
Markets currently expect the Federal Reserve and Bank of England to have managed to raise their interest rates by the middle of next year, but only by the smallest of margins. It is at this point which Citi’s economists believe a recession will bite, and they may be forced to reverse those incremental rate hikes.
And while central banks could use other tools to avoid the recession of which the US bank warns, Mr Buiter warned that policymakers will not be allowed to act, restricted by politicians critical of unconventional monetary interventions.
12 Comments on "China leading world towards global economic recession"
Makati1 on Thu, 10th Sep 2015 7:12 am
And then there is this:
http://journal-neo.org/2015/09/09/russia-and-china-together-the-greatest-fear-of-donald-trump/
Or:
http://thebricspost.com/china-august-fdi-rises-22-year-on-year/#.VfFyVJdyPd4
Or:
http://thebricspost.com/china-stocks-surge-2-9-tuesday/#.VfFydZdyPd4
And:
http://thebricspost.com/after-india-china-announces-new-way-of-calculating-gdp/#.VfFykZdyPd4
The Smear campaign against Russia and China is not working out very well. They are basically ignoring the West and moving forward with their own plans. Containment? What containment?
LMAO
Davy on Thu, 10th Sep 2015 7:47 am
I hate to say I told you so anti-American Asiaphiles but I did. I have consistently over the past 2 years telling the Bric lovers just how much of a turd the Brics are. This includes the growth addicted cornucopians on this site that would crow daily how China was the coming global superpower and economic giant. HA Ha. Over and over I was denounced as anti-Asian and doomer Davy.
The US is a mess at all levels that is for sure “BUT” so are the Bric turds especially China. China is killing the world with overconsumption and overpopulation. The Chinese credit bubble and it’s inept leadership response is going to initiate the beginning of the end of the global economic system. China was the last engine of growth. I shouldn’t call it growth I should call it an orgy of mal-investment. So Bric lovers read this and weep your propaganda just spit up like a sick baby.
Rodster on Thu, 10th Sep 2015 7:58 am
The world has been in a DEPRESSION since 2008 and that continues. Only the “Presstitute” media are the ones who don’t want to admit it. If the general population were told the truth there would have been chaos in the streets after the global economy collapsed in 2008. That day of reckoning is still to in the future.
joe on Thu, 10th Sep 2015 8:57 am
Most stock markets work by hair trigger computers. The massive liquidity put out there by the FED and handed over to brokers makes the true market sentiment hard to read. One minute it’s -500 next it’s +500, that’s not rational. That is evidence of a dysfunctional market, as markets function electronically there is only the talking heads on Bloomberg and CNBC desperately trying to make sense of it. A broker comes along, inputs the latest trends and survey results and puts in the tolerances for losses and the computers flood markets with cash, or sucker it out, the flash crash is an example of the true power of computers in markets.
Politicans have abandoned economics as a topic of discussion, they try instead to leave monetary policy to private interest, and as long as THEIR balance sheet is in the black at the end, they don’t really care who is footing the bill.
People like to imagine an illuminati or some such global power, I think it’s because it’s a much more scary thought to think that nobody is really in control. Banks have so much power because government is terrified of not having them,. They make a profit by issuing more fiat currency every year. They are in so deep, nobody will ever be able to undo it. Nobody will ever ask the US for the trillions it owes, only little powerless countries have pay, everyone else, defaults. Then they reset the balance sheets and begin again.
The US owes more than one years gdp, so there is no recovering in a default.
China is at around 25% of debt to gdp.
https://en.m.wikipedia.org/wiki/List_of_countries_by_public_debt#List.
There is scope for growth, but the demand has to come from consumers of Chinese goods, not the Chinese (because their wages is too low and their currency is much lower versus others), and demand in the west won’t grow fast in developed economies, as the US is the prime example of, it has too much debt.
This is a limits to growth issue.
zoidberg on Thu, 10th Sep 2015 9:37 am
Technically since China is major exporter and manufacture they’ve followed the world into recession when the US and Europe growth stalled and then cheaper competitors took market share. China doesn’t lead nuthin.
zoidberg on Thu, 10th Sep 2015 9:38 am
Their peg to the US dollar was also crushing their exporters, which is why they tried to loosen it(and got some major coincidental explosions)
BobInget on Thu, 10th Sep 2015 9:41 am
OMG, Thanks again Joe. Great analysis.
Like Japan, unlike the US, most of China’s debt is internal.
It seems to me, it’s in China’s interest to turn a trillion USD reserves into finite commodities. Venezuela, Ecuador, might be a good examples of such strategy.
From what I read, Chinas using this ‘downturn’,
and inflated USD to buy up South American, African minerals and farmland, develop markets for China’s export markets.
Modern Colonialism financed by USD’s
This as policy has the LT effect of consolidating
ever more dependent markets, eventually denying cheap resources to US industry.
Makati1 on Thu, 10th Sep 2015 8:56 pm
BobInget, you too see the probable Chinese plan to own real assets, not paper dollars. I have been watching them for years, burning those USDs all over the world. Buying up resources and building railroads and ports to ship those resources back to China.
How much can they buy with $1,200,000,000,000.00? Answer: A lot! Not to mention the hundreds of billions flowing in each year in balance of trade.
If Americans believe that the Chinese are stupid, they should look in the mirror and get a taste of reality.
apneaman on Thu, 10th Sep 2015 10:21 pm
What’s Wrong With Economics
I don’t like to just excerpt other sources, but these are some of the most well-formulated and sharpest critiques of modern economics I’ve come across. They are worth reading and re-reading in full, and do check out the original sources. They show how the anti-government, pro-market bias was “baked in” to economics from day one, and how it has evolved into a religious dogma rather than any sort of objective, empirical “science.”
http://hipcrime.blogspot.ca/2015/09/whats-wrong-with-economics.html
GregT on Thu, 10th Sep 2015 10:44 pm
Thanks for another great link Apnea.
A take away for Nony et al.
“Perhaps the biggest problem with neoclassical economists is that in spite of their emphasis on mathematics, they do not seem to understand the concept of exponential growth. If use of a resource is growing exponentially at a rate that will lead to its complete exhaustion in 50 years, after 45 years only 3 per cent of the resource has been used up. If we underestimated the supply of the resource by a factor of 16, then complete exhaustion would occur in 54 years rather than 50. For the last 200 years, our economy (including agriculture) has been powered by exponential growth in the use of fossil hydrocarbons, particularly oil, but oil use now exceeds discovery rates by a factor of at least 6:1.”
“The greatest shortcoming of the human race is our inability to understand the exponential function.”
Al Bartlett, R.I.P.
Kenz300 on Fri, 11th Sep 2015 7:16 pm
China has hit a rule of large numbers…… growing at a high rate for 30 years makes the base huge……
China is still growing… China’s growth is still larger than most countries….. Most countries would love to have a 6% growth rate………
It is time for expectations to get reset to something more realistic.
Makati1 on Fri, 11th Sep 2015 7:45 pm
Kenz, I agree. China is still growing at somewhere between 2 and 6%. The US can only dream of growth as it has had zero growth for at least the last seven years. The US is, in reality, in contraction.