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So much for the US economic eclipse

Daniel Moss
Daniel Moss • 4 min read
So much for the US economic eclipse
Photo: Bloomberg
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From China comes discouraging new language. Leaders described their faltering economy as showing a “wavy pattern” with “bumps during progress.” Put politely, the message is that the country will not provide the lift for the global economy that was widely anticipated six months ago. It may even be a drag, a role to which Beijing and the world are unaccustomed. We should get used to it.

Who will the world rely on? The much-maligned US, often derided over the past decade as being in its sunset years relative to its economic challenger? A retreat in inflation is likely to mean that an anticipated interest-rate hike by the Federal Reserve on July 26 will be the last for a while. When it comes to China, the debate is about how much growth will slow, whether the country will suffer from deflation and how much action is needed to turn things around — or, at least, prevent a further deterioration.

The odds of an American recession in the next 12 months are fading, according to a survey by the National Association for Business Economics. A resilient labour market and buoyant consumer confidence underpin that view.

Beyond US shores, the situation is more nuanced: Surveys of purchasing managers in Europe painted a bleak picture. Conditions are improving in some key Asian economies, albeit from a low base. Singapore unexpectedly dodged a recession in the second quarter. Revisions may yet show the city-state’s GDP slipped after a first-quarter contraction. Growth in South Korea is improving modestly after GDP shrank late last year.

China stands out for the discord between expectations and performance. At the start of the year, it was a reasonable bet that the dismantling of zero-Covid would unleash a robust recovery at home that would, in turn, lift everyone — and certainly Asia. Beijing’s growth target of about 5% was criticised as too low.

Now, after months of disappointing data, China looks like it will be lucky to hit that goal. Hopes for a massive stimulus keep coming, only to be dashed. Barclays and Bank of America Corp are among firms to recently shave their forecasts for expansion.

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The top decision-making body does seem to have become more concerned about the waning recovery, based on a statement after a meeting on July 24. Officials are, nevertheless, still expected to hold off from any large-scale stimulus. They are mindful of debt risks and the dangers of juicing the economy too much. But the approach is conservative to a fault.

The International Monetary Fund (IMF) is far too courteous to haul China over the coals. In a cautiously upbeat revision to growth forecasts unveiled on July 25, the lender projected the global economy will expand 3% this year, a touch above the prior 2.8% forecast. Good news that the outlook is headed in the right direction, though the estimate is still below the 3.5% lodged in 2022. (The IMF retained its prediction that China will expand 5.2%. The US got a slight upgrade to 1.8%. Germany’s economy will go backwards.)

Much of the credit for the brighter scene can go to the US. The IMF praised the authorities for averting a broad banking crisis after tumult in regional lenders in March. Washington also got a nod for an accord to lift the debt ceiling and head off a potential default. Whatever happened to the cottage industry that was regularly updating us on when China’s economy would surpass the US? Pretty quiet on that front lately.

Perhaps we need to stop thinking of China as the would-be saviour of the global economy. That requires an adjustment that goes beyond moving a few forecasts up or down a touch. — Bloomberg Opinion

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