October 2019 – 3 in 3
This month, Jason Weaver discusses China slowdown, global recession and negative interest rates.
China Slowdown
China has been the single largest contributor of economic growth over the past several years. Currently, their economic data is pointing to a significant slowdown. There are factors affecting that including:
- US/China Trade War
- Shrinking labor force due to their 1 child policy
- Swine Flu affecting pork prices
- Hong Kong protests
In 2015, China enacted one of the largest stimulus plans in the history of China. Real GDP peaked at 13.55%. Since then, China’s growth has been slowing. But recently, that growth has fallen below 3%. When you look at the added value of industry, fixed assets investment and retail sales in China, it peaked in 2014-2015 and has been slowing ever since.
Global Recession
Historically, 3% was used as a threshold for a global recession. Bloomberg’s global GDP tracker shows that expansion has slowed about a 2.2% growth in the third quarter. The IMF sees a serious risk to a global recession. If you look at it, this might have all occurred in China. Europe has also begun to slow with less bank lending, negative interest rates, slowing auto sales and growing trade war potential.
You can see slowing global growth through the IMF projections of growth. The last recession we had was in 2008-2009 but started growing right after. From there, we have been slowing and now the reading has been down graded to about 2.2%.
Negative Interest Rates
Some central banks around the world have set interest rates below zero. They are trying to force commercial banks to be dissuaded from carrying balances by making loans. When they make loans, this could potential lead to growth and inflation. There is $15 trillion of negative interest rates around the world. The total negative yielding corporate bonds stands at about $1 trillion. Investors are searching for yield all over the world, but it is hard to find, especially with good bonds.
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September 2019 – 3 in 3 Market Update