Global Economy Update: Growth Return not Imminent
took a tumble in June, slipping 3.1 and 0.7 percent, respectively. Those figures may not sound dramatic, but considering the historically blistering rate of Chinese growth over the past decade they suggest a serious slowdown looming in the world’s second-biggest economy.This is all further evidence that the over-heated Chinese economy may well be falling back to earth. While analysts are often quick to question the veracity of Chinese economic data, and part of the surprise slowdown appears to be the result of the Chinese central government cracking down on over-invoicing and bogus trading, the details of June’s trade data are “unremittingly bad.” A domestic credit crunch, a strong renminbi and slackening demand for Chinese goods are taking their toll.The rest of the BRICS, meanwhile, are unlikely to pick up the slack, at least according to the IMF. That organization trimmed its global growth forecast for 2013 and 2014, particularly downgrading growth prospects in Russia and Brazil. The IMF blamed the dimmer outlook in part on weakened Chinese demand for raw materials.This news comes on the heels of a month of instability in emerging markets. Emerging nations like Brazil and China were supposed to be the drivers of global economic growth. Slumping growth in the BRICS is possibly bad news for the U.S. and Europe as they struggle to pull themselves out of recession.It also sets the stage for some political fallout. Many developing countries, particularly Egypt, Turkey and Brazil, are also dealing with political unrest. Sliding exports in China may also push its leaders to devalue the renminbi, a move sure to irritate the United States and other countries who have long been concerned about Chinese currency manipulation. It could also lead the Chinese to view Japan’s aggressively pro-export, devalued-Yen “Abenomics” policies with growing suspicion. As they both fight to drive down their currency—and make their exports cheaper and more attractive to foreign buyers—they may well find themselves competing over more than a string of unoccupied islands. In all cases, tensions are likely to rise as economic prospects fall.