DANIEL MOSS: China’s slowdown makes global rebound more dependent on US
Beijing’s travails might wind up pushing the Federal Reserve and European Central Bank to delay an exit from easy money
Long a source of resilience in the world economy, China joins the list of vulnerabilities that threaten to upset a shaky recovery. The slowdown in Chinese growth, worsened by debt crises in the property sector and an energy shortage that is closing factories, makes the global rebound even more dependent on the US. Beijing doesn’t look like it is ready to take the mantle from Washington soon.
GDP rose 4.9% in the third quarter from a year earlier, according to government data released on Monday in Beijing. The figure is a touch less than forecast by economists and well down from the 7.9% clip previously reported for the April-to-June period.
The rate of expansion is almost a full percentage point below what was recorded in the final three months of 2019, on the eve of the pandemic. While there is never a perfect moment for the world’s second-biggest economy to lose altitude, the timing of this slowdown is especially awkward. A spike in inflation from New Zealand to the UK is likely to accelerate the shift to tighter monetary policy across advanced economies, while the pace of the US expansion is cooling. A slackening in China is a headache policymakers don’t need.
Chinese officials say the risks are manageable. Let’s hope they are right: the staying power of the global revival may depend on it. Beijing’s travails might wind up pushing the Federal Reserve and European Central Bank to delay an eventual exit from easy money — even if inflation is too high for comfort. On Saturday, ECB President Christine Lagarde said that inflation is “largely transitory”.
Some retreat from the blistering pace at the start of the year was inevitable, and even desirable. China roared into 2021, growing a record 18.3% in January to March. But the cooling has been more pronounced than anticipated, and a number of strains have emerged at the same time. Tighter government restrictions on real estate squeezed a big chunk of the economy, while China Evergrande Group, a major developer, is beset by a debt crisis that is rippling through the sector. The combined sales of the country’s top 100 developers plummeted 36% year-on-year in September, which is traditionally a peak season for home sales. A shock electricity shortage has forced factories to curb output or shut down.
Recurrent outbreaks of Covid-19 have constrained consumer spending. China’s woes increase the world’s dependence on the US, whose stimulus drove a mighty rebound at the start of the year. While the IMF forecasts global growth this year at a still-hale 5.9%, momentum has been lost. Economists are reducing estimates for the US and a few well-known academics have even asked whether another recession has arrived.
This puts the Federal Reserve in a difficult place, given its commitment to trimming stimulus and the persistence of inflation that is markedly above its 2% target. While the Fed derives its mandate from domestic conditions, it has increasingly been seen as the primary guardian of the world economy. Chair Jerome Powell or his successor — Powell’s term expires early next year — may face the unenviable choice between propping up the recovery and quashing climbing inflation. China’s economic travails are as global as they are local.
Bloomberg Opinion. More stories like this are available on bloomberg.com/opinion
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