China: The Worst Case Scenario
Or, give peace a chance
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At last, it is becoming apparent to everyone that China’s vaunted economic rebound is not as strong as expected. At the World Bank/IMF meetings early this month, forecasts were modest. Global growth is expected to fall from 3.4 percent in 2022 to 2.8 percent in 2023. China’s exit from Zero Covid has not been able to lift up all boats, as some had hoped:
Back in January, the BofA Global Fund manager survey showed the most bullishness on China in the 17 years of the survey. 90% expect China to reopen fully in 2023. Simply put, everyone who was anyone in global markets was betting on China reopening trade. (Jim Bianco @biancoresearch)
As readers of the China Report know, I have written that it would be unrealistic to believe that China would emerge from the pandemic as the driver of worldwide economic growth it once was. Structural forces were already putting the brakes on its economy before 2020. Inflation remains low, another indicator that demand is weak. Three years on, the US is making a concerted effort to end-run China in finance, technology, defense, and trade, creating additional obstacles to growth.
Now some even worry that Chinese demand will be so great that it will create a second spike in inflation forcing Jay Powell to hike more aggressively than planned. Don’t hold your breath. China might not be the trigger the rest of the world expects. The China Rebound EconVue+ January 29, 2023
In the US, GDP growth for the first quarter of 2023 was half what economists expected. For a number of reasons-debt, demographics, and political division-the world is growing at a much slower pace than we have become accustomed to. And as we have seen with the war in Ukraine, it is also a much less peaceful place, more in tune with the rest of history, as if the peace dividend of the past 75 years has been suspended. In order to prepare or prevent, we need to start talking about what this new era of high conflict and low growth might encompass.
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