Commentary

Growth Slows In China; IMF Sees Global Slope Pointing Uphill

Amplifying concerns that the global economy has lost its bounce, China said yesterday that its economy grew 6.6% last year -- its slowest rate of expansion since 1990 -- and the International Monetary Fund (IMF) issued a gloomy outlook at the annual World Economic Forum in Davos, Switzerland. 

“Chinese growth has lost momentum following government efforts to try to rein in high levels of debt. It has also started feeling the effects of the trade war with the United States, which has resulted in new tariffs on more than $250 billion of Chinese exports,” writes Daniel Shane for CNN Business

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“The deteriorating situation in a market that businesses around the world rely upon for growth is having a widespread impact. It has spooked investors and prompted warnings from top companies like Apple,” Shane adds.

Data released by China’s National Bureau of Statistics “portrays an economy that is challenged. Big-ticket investments by both government and businesses are lackluster. Property sales, a long-reliable source of growth, are weakening. And indicators from industrial output to retail sales slowed in recent quarters,” Lingling Wei writes for the Wall Street Journal.

Still, “as slowdowns go, the numbers indicate a mild one befitting a big, maturing economy like China’s. While the figures match historic lows, they show only a small drop from previous periods,” Keith Bradsher writes for the New York Times. “Monthly data released on Monday also suggested better-than-expected consumer spending and industrial production in December, raising the possibility that growth is stabilizing.”

At the same time, Bradsher points out that “many economists have estimated that China’s slowdown is worse than the government’s figures show, citing more detailed data” although most “say the number is only a percentage point or two lower.”

Meanwhile, the IMF's managing director Christine Lagarde said at Davos yesterday: “The bottom line is that after two years of solid expansion, the world economy is growing more slowly than expected and risks are rising. … If the world economy were a cross-country skier, she would have been moving at a relatively high speed last year, but now the slope is changing and pointing slightly uphill. This is still a good trail to be on, but it gets a little bit harder to keep up the pace.”

That’s a tempered warning, but conditions seem to have changed with the speed of a blustery cold front.

Writing for the Washington Post, Heather Long and Anna Fifield contrast the mood at Davos yesterday to last year’s gathering “when President Trump and other world leaders talked about global prosperity [while] this year attendees expressed worry that the United States was undermining its own economy, and the rest of the world’s, via a trade war and the longest partial government shutdown in U.S. history.” 

“The IMF cut its estimate for global growth this year to 3.5%, from the 3.7% it had predicted in October and down from 2018’s 3.7%. The fund cited heightened trade tensions and rising interest rates,” reports the AP’s Paul Wiseman in Time.

“The IMF left its prediction for U.S. growth this year unchanged at 2.5% -- though a continuation of the partial 31-day shutdown of the federal government poses a risk. The IMF trimmed the outlook for the 19 countries that use the euro as their currency to 1.6% from 1.8%. Germany got a big downgrade from the IMF, the result of weaker demand for German exports and problems in the country’s auto industry,” Wiseman adds. “Emerging-market countries are forecast to slow to 4.5% from 4.6% in 2018.”

Wiseman observes that the World Bank and the Organization for Economic Cooperation and Development have also downgraded their world growth estimates.

The WSJ’s Lingling points out that “China and the U.S. are preparing for a new round of high-level trade negotiations at the end of this month, trying to reach a resolution by March 1, when a three-month ceasefire Mr. Xi and President Trump reached expires.”

That truce hasn’t stopped the President from lobbing grenades on Twitter, of course.

“China posts slowest economic numbers since 1990 due to U.S. trade tensions and new policies. Makes so much sense for China to finally do a Real Deal, and stop playing around!” Trump tweeted from the White House last night.

“But in Davos, others argued the United States was relinquishing its historic role in the global economy,” the WaPo’s Long and Fifield report. “‘If you want to be a superpower in the world -- and the U.S. still is -- you have to engage with people,’ said Hans-Paul Bürkner, chair of the Boston Consulting Group.”

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