The world’s two biggest economies are separately struggling to come in for unparalleled, simultaneous soft landings, an effort complicated by the trade war they’re waging at the same time.
It’s hard enough for the U.S. or China to pull fiscal and monetary levers to manage a step-down in growth alone. For the two to try to do it concurrently makes what is already “a fairly narrow target even narrower,’’ said Deutsche Bank Securities’ chief economist Peter Hooper.
A misstep would also turn what’s supposed to be a controlled touch down of their economies into something much worse – a worldwide recession. While most economists say that’s unlikely, they acknowledge that it can’t be ruled out, especially if the temporary trade truce between the two countries breaks down or if equities keep sliding.
“If we get an escalation in trade tensions and another 10 to 15 percent drop in the stock market, you’re looking at enough of a tightening in financial conditions to say that a global recession is a real risk,’’ said Hooper, a former Federal Reserve official.
Negotiations between the U.S. and China in Beijing this week on trade were “extensive, in-depth and detailed” and laid a foundation for a resolution, China’s Ministry of Commerce said.
The attempted maneuver by the Fed and Chinese authorities comes as the global economy enters 2019 showing signs of slowing, with the world’s No. 4 economy, Germany, flirting with a recession. Complicating the task is President Donald Trump. He has welcomed China’s economic troubles as giving him added leverage in trade talks with the Asian country, while he’s attacked Fed Chairman Jerome Powell for trying to slow the U.S. economy with interest-rate increases.
Seeking to allay investor fears of a Chinese hard landing, Powell told the American Economic Association’s annual meeting last week that the country’s authorities are responding to signs of weakness in their economy with additional stimulus.
“China and the rest of emerging Asia should continue to expand at a still solid pace this year,” Powell said.
Some of the deceleration in China’s economy was self-induced as policy makers sought to dampen frothy property markets, curb leverage and crack down on shadow banking.
“We had been expecting the slowdown for quite some time,’’ Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, told Bloomberg Television.
What did surprise China was Trump’s assault on the country’s mercantilist economic policies, resulting in tariffs on some USD250 billion worth of Chinese exports to the U.S., Hensley said. That threatened a bigger downshift in growth than China wanted.
Chinese officials have responded with selective stimulus measures to try to prop up growth while eschewing their traditional approach of opening up the credit spigots. Bloomberg