{"id":26903,"date":"2015-05-05T05:11:46","date_gmt":"2015-05-05T03:11:46","guid":{"rendered":"http:\/\/www.w-t-w.org\/en\/?p=26903"},"modified":"2015-05-07T20:15:56","modified_gmt":"2015-05-07T18:15:56","slug":"china-and-us-how-slow-is-slow","status":"publish","type":"post","link":"https:\/\/www.w-t-w.org\/en\/china-and-us-how-slow-is-slow\/","title":{"rendered":"China and US: How Slow is Slow?"},"content":{"rendered":"
\n

Michael Spence writes:\u00a0 The world\u2019s two largest economies, the United States and China, seem to be enduring secular slowdowns. But there remains considerable uncertainty about their growth trajectory, with significant implications for asset prices, risk, and economic policy.<\/p>\n

The US seems to be settling into annual real (inflation-adjusted) growth rates of around 2%, though whether this is at or below the economy\u2019s potential remains a source of heated debate. Meanwhile, China seems to be headed for the 6-7% growth rate that the government pinpointed last year as the economy\u2019s \u201cnew normal.\u201d Some observers agree that such a rate can be sustained for the next decade or so, provided that the government implements a comprehensive set of reforms in the coming few years. Others, however, expect China\u2019s GDP growth to continue to trend downward, with the possibility of a hard landing.<\/p>\n

There is certainly cause for concern. Slow and uncertain growth in Europe \u2013 a major trading partner for both the US and China \u2013 is creating headwinds for the US and China.<\/p>\n

Moreover, the US and China \u2013 indeed, the entire global economy \u2013 are suffering from weak aggregate demand, which is creating deflationary pressures. As central banks attempt to combat these pressures by lowering interest rates, they are inadvertently causing releveraging (an unsustainable growth pattern), elevated asset prices (with some risk of a downward correction, given slow growth), and devaluations (which merely move demand around the global economy, without increasing it).<\/p>\n

For China, which to some extent still depends on external markets to drive economic growth, this environment is particularly challenging \u2013 especially as currency depreciation in Europe and Japan erode export demand further. Even without the crisis in major external markets, however, a large and complex middle-income economy like China\u2019s could not realistically expect growth rates above 6-7%.<\/p>\n

Yet, in the aftermath of the global economic crisis, China insisted on maintaining extremely high growth rates of 9% for two years, by relying on fiscal stimulus, huge liquidity injections, and a temporary halt in the renminbi\u2019s appreciation. Had the government signaled the \u201cnew normal\u201d earlier, expectations would have been conditioned differently. This would have discouraged undue investment in some sectors, reduced non-performing loans, and contained excessive leverage in the corporate sector, while avoiding the mispricing of commodities. Growth would still have slowed, but with far less risk.<\/p>\n

In the current situation, however, China faces serious challenges. Given weak growth in external demand and an already-large market share for many goods, China cannot count on export growth to sustain economic performance in the short run. And, though support for infrastructure investment by China\u2019s trading partners \u2013 especially through the \u201cone belt, one road\u201d policy \u2013 may help to strengthen external markets in the longer term, this is no substitute for domestic aggregate demand.\u00a0\u00a0 Slow Down in US and China<\/a><\/strong><\/p>\n

\n

\n<\/div>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

Michael Spence writes:\u00a0 The world\u2019s two largest economies, the United States and China, seem to be enduring secular slowdowns. But there remains considerable uncertainty about their growth trajectory, with significant implications for asset prices, risk, and economic policy. The US … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":22,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[13],"tags":[],"class_list":["post-26903","post","type-post","status-publish","format-standard","hentry","category-finance"],"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t\n\t\t