Well, some folks have been talking about it for a while, but figures this week suggest the long-anticipated slowdown has arrived.
Negative numbers out of China have been reported for some months now, particularly falling PMI figures suggesting a steadily deteriorating outlook. Beijing has set a target of GDP growth range of 6.0-6.5% this year, according to The Telegraph, down from a hard target of 6.5% over the last two years, and blamed the trade war.
It’s debatable whether China will even manage 6% this year. While the trade war with the U.S. has exacerbated problems, the slowdown started before President Donald Trump’s Section 232 and Section 301 actions.
Nevertheless, the trade war is certainly making matters worse.
Another article in The Telegraph reports a sharp fall in Chinese shipments. Imports and exports are both falling, while Premier Li Keqiang is quoted as saying this week that “Instability and uncertainty are visibly increasing and externally generated risks are on the rise, downward pressure on the Chinese economy continues to increase, growth in consumption is slowing, and growth in effective investment lacks momentum.”
Until now, a sluggish Europe and a slowing China were being counterbalanced by a robust U.S. economy and decent growth in other emerging markets.
But last week, shock jobs data suggests U.S. growth is not a given.
The 20.7% slump in February was four times greater than predictions of a 5% decline, with just 20,000 workers added to payrolls — some 160,000 fewer than expected.
Some are attributing the sharp slowdown to the impact of tariffs and negative investment sentiment, mounting pressure on the president to reach a deal with the China this month. The tariffs were promoted as a solution to the growing trade deficit, but so far at least the opposite has prevailed.
The U.S. Department of Commerce is quoted as saying last week that a 12.4% jump in December contributed to the record $891.3 billion goods trade shortfall last year. The overall trade deficit surged 12.5% to $621.0 billion, the largest since 2008, effectively junking suggestions that the U.S. could tariff its way out of the deficit.
The situation may not have been helped by the president’s tax giveaway that has in part been spent on the import of luxury goods, such as autos. The impact of higher domestic prices, though, seems as much psychological as actual, with consumers postponing purchases in the face of rising prices.
Salaries are rising, unemployment is low, consumers are not fearful of their future in the way they are in a recession, but they may be deferring buying in the hope of a trade deal and a reduction in costs later in the year or next.
The danger is by then we really may be in a recession if the economy, both in the U.S. and globally, does not get back on track this year.
Negative sentiment has a tendency to be self-fulfilling.