Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Are Advanced Economies Ready for Recovery, Really?

Economics / Global Economy Jul 03, 2017 - 09:24 AM GMT

By: Dan_Steinbock

Economics

Or Global Reflation As China Begins Tightening
Until recently, the conventional wisdom was that China’s contribution to global reflation would be increasingly accompanied by those of the US and Europe. Yet, the realities may look grimmer than anticipated.

Usually, the term ‘reflation’ is used to describe the first phase of economic recovery after a period of contraction. More recently, ‘global reflation’ has been deployed to refer to the post-crisis past decade, which has been characterized by lingering recovery from the global crisis, despite ultra-low rates and quantitative easing.


During the global crisis, China accounted for much of global growth prospects, while the US, Europe and Japan coped with the Great Recession. Even today, China continues to drive a disproportionately large share of global growth.

However, as deleveraging has now started in the mainland, China can no longer raise future optimism single-handedly.  

From debt to deleveraging

Today, China has its debt challenge. It evolved in just a decade. And while it can still be supported by catch-up growth and productivity, it is untenable over time.

In 2007, China’s total debt was 136 percent, of which most was private non-financial debt (115%). By 2015, Chinese debt had soared to 221 percent of GDP, of which most could be attributed to private debt (205%), as opposed to central government debt (16%).

China could continue to take debt, which would eventually end in a crisis, as evidenced by many advanced economies. Instead, since late 2016, the central bank has adopted a tighter monetary stance. Indeed, recent data on the decline of total social financing and broad money supply suggests that deleveraging has begun.

China’s debt burden is the result of the 2009 stimulus package, which contributed to infrastructure but unleashed huge liquidity and speculation, and the 2016 credit expansion, which heated property markets, despite tougher regulation.

Setting aside excessive leverage, both surges have had beneficial impacts internationally. The 2009 stimulus ensured global growth prospects and probably spared the world from a global depression. The 2016 credit surge allowed China to stabilize economy and markets, which, in turn, supported lingering recovery globally.

The big question is, if China accounts for much of recent global reflation, can the latter be sustained as deleveraging accelerates in the mainland?

Dreams and realities of global reflation

Not so long ago, there were still great hopes about sustained ‘global reflation.’ Last fall, the Trump triumph in the US elections unleashed great expectations about the coming of fiscal expansion, tax reforms, and deregulation. As a result, markets soared, which lifted confidence internationally.  Thereafter, European recovery has been faster than in years, thanks to the French election, expectations of a ‘soft Brexit’, and Chancellor Merkel’s anticipated victory in German election later in fall.

Today, half a year later, it is clear that Trump’s fiscal expansion will move ahead far slower than anticipated and the administration’s credibility, perhaps even its future, is likely to be suppressed by the impending Mueller investigation, while the Federal Reserve is planning a third date hike in the fall.

In Europe, rising confidence ignores the fact that current growth rates remain predicated on ultra-low rates and tens of billions of euros for quantitative easing on a monthly basis. It may under-estimate the adverse impact of the lingering Brexit story, the challenges associated with French President Macron’s proposed labor reforms, as well as the potential implications of the struggling two mid-sized Italian banks. It is a recovery that, at least for now, relies on artificial lungs.

In the past decade, much of global growth prospects and recent global reflation can be attributed to China. In the next few years, China will continue to support global economic integration through the One Road and One Belt program and many other initiatives. But it can no longer fuel global growth and reflation on its own.

So the question is, have advanced economies really surpassed secular stagnation and are they today willing, but also able to do their share for global growth prospects?

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules