The world economy is facing strong headwinds

China's Economy, 2016: Biggest Threat Since Collapse of 2008 | Brittany Stepniak | Thursday, November 5, 2015

Last year, CNBC ran a story citing some serious concerns brewing over in China — predicting a “perfect storm” to erupt in 2016. Presently, news reports are echoing those concerns, calling the coming year a “nightmare” for China's economy...

Although it's hard to say exactly how much China's economy is slowing down, we know it's been enough to drag down stock markets the world over in recent weeks. So I highly doubt the country's growing at 7% as the government has said.

After all, China has been the kingpin player igniting this massive bear market plague that has spread throughout the world, all the way from Canada to Brazil.

And contrary to popular myth, the U.S. certainly has no immunity against China's rippling troubles. Come bull or bear market here, it's time to look at the storm brewing overseas...

Indeed, China's pending market meltdown has been called “the scariest threat to stocks since 2009.” No doubt.

CNN Money reports:

"An economic slowdown in China is as large of a catalyst in investors' minds as anything we've seen going back to the financial crisis," said Art Hogan, chief market strategist at Wunderlich Securities. China matters so much because its explosive growth fueled the rest of the world. A huge appetite for goods and raw materials lifted economies in Europe, Asia, Latin America, Australia and elsewhere. "If China gets a cold, the rest of Asia gets the flu," said Peter Kenny, chief market strategist at The Clear Pool Group, a financial technology firm.

Unprecedented Market Chaos

Previous market scares of this caliber have been historically insulated by our dear old Federal Reserve fairy godmother. But as I regretfully informed you last month, this fairytale has failed us. Our knight in shining armor has been exposed as a crony. He's simply not equipped to win this duel against reality. The Fed has stopped buying bonds and mortgages and keeps threatening to raise rates for the first time in nearly a decade. There's no longer a safety net to help break the fall of an epic global collapse.

Meanwhile the International Monetary Fund is still wearing its cozy rose-tinted glasses and calling for a stronger world economy in 2016 vs. 2015. The fund's economists are predicting cumulative global growth of 3.6% — up 0.5% from the 3.1% 2015 growth rate. Adair Turner, former chairman of the U.K.'s Financial Services Authority and author of a new book, Between Debt and the Devil, isn't quite on the same page here. He's quite concerned about 2016, including "undeclared currency wars" amidst China's deceleration. In fact, his mainstream outlook for the year ahead remains contingent solely on the fate of China.

Yet again, China is poised to play the most important role in determining the health of our global economy at large next year. Referencing the aforementioned fact that China's annual GDP has dropped below 7% in the third quarter of 2015 for the first time since the dark days of the 2008-09 crisis, Adair emphasizes his escalating pessimism...

Trade Woes

Two major problems facing China today include China's slowing demand (especially when it comes to oil and gas) whilst they hammer away, developing infrastructure that doesn't seem urgently needed. Countless developing nations are co-dependent on China being a big customer for their resources: Brazil, the Philippines, South Africa, Chile, Indonesia, Malaysia, Vietnam, and Thailand, to name a few. Lately, that demand has nosedived. Hence, all this increased economic strife among China's usual resource sellers.

Activity in the country's factories has subsequently dropped at its fastest rate for at least three years in August, as domestic and export orders plummeted. The Ministry of Commerce anticipates weak global demand to spill over into 2016, leaving countless cautious consumers in developed countries. On account of this information, the world should prepare for a great deal of volatility in emerging-market economies.
To help avoid any panic, the Ministry of Commerce vaguely suggested that China's trade sector difficulties will be able to “achieve steady development,” neglecting to give any specific forecasts. (Gee, that's reassuring, right?)

Down, Down, Down

What we do know for sure is that China's combined exports and imports fell a staggering 8.1% in the first nine months of the year from the same period in 2014, well below the full-year official target of 6% growth. Additionally, even the IMF believes China's growth will slow down to 6.3% compared to the estimated 6.8% growth rate quoted to represent 2015.

But chief global economist of Citigroup Willem Buiter isn't quite buying that either. In another pessimistic outlook, Buiter said, “We consider China to be at high and rapidly rising risk of a cyclical hard landing,” citing excess capacity and high debt loads. This will be especially catastrophic for emerging nations like those listed above, but the ripple effect will still negatively impact growth in wealthier nations like the United States.

Recessions will undoubtedly abound. Growth rates will undeniably slow. Unpredictability within China's economy will be the biggest culprit. Although it's hard to say which projection will come to fruition, I'd brace myself if I were you, hedging bets accordingly. You can do that a few ways, but — as always — historic favorites like silver and gold are ideal in unpredictable economies awash with volatile market mayhem.

Source: Britanny Stepniak on Outsider Club.

  1. Project Syndicate on China
  2. Mon dossier sur la Chine
  3. Michael Pettis The limit to China's growth
  4. Michael Pettis If we don’t understand both sides of China’s balance sheet, we understand neither
  5. Michael Pettis Thin Air’s money isn’t created out of thin air


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