Fra Fathom Consulting:
Last week’s Caixin manufacturing PMI confirmed that all is not well in the Chinese economy, as the headline index fell to 47.0, the weakest reading since early 2009. A figure below 50.0 is indicative of a contraction in activity. The fact that China is suffering a hard landing is now close to consensus, but the consequences are still up for debate.
We have argued since January that China’s economy is destined for a hard landing, so mounting evidence of China’s slowdown has not come as a surprise to us. However, with China still the world’s largest net exporter, we are relatively unconcerned by the consequences for global economic growth.
Using our China Momentum Indicator, rather than the official statistics, China began to slow dramatically from the beginning of last year. The main impact to date has been on commodity prices, which have fallen dramatically. Global growth, and US growth in particular, has continued largely unabated.
When its own bubble bust at the end of the 1980s, it is notable that Japan accounted for a greater proportion of global GDP than does China today. It is now widely accepted that the consequences for the rest of the world of Japan’s lost decades were relatively small. And, back then, Japan was a net importer. Our view is that the impact of China’s slowdown on global growth will be small.
