Saturday, September 13, 2014

Now China's Economy is Slowing Down

The ECB recently announced a new asset buying plan to "stave off deflation" in the Eurozone. The latest economic reports in the US (labor and housing) suggest a weakening economy. Now factory growth in China is falling. Sanctions against Russia are hurting global GDP. The evidence keeps piling up that global GDP growth may come in well below forecasts and officials may be fighting a losing battle against deflation. Here is the Reuters article on Chinese factory growth slumping.

"(Reuters) - China's factory output grew at the weakest pace in nearly six years in August while growth in other key sectors also cooled, raising fears the world's second-largest economy may be at risk of a sharp slowdown unless Beijing takes fresh stimulus measures."

"The output data, combined with weaker readings in retail sales, investment and imports, pointed to a further loss of momentum as the cooling housing market increasingly drags on other sectors from cement to steel and saps consumer confidence."
"The August data may point to a hard landing. The extent of the growth slowdown in the third quarter won't be small," said Xu Gao, chief economist at Everbright Securities in Beijing."
"Jiang Yuan, a senior statistician with the bureau, said the dip in August factory growth was due to weak global demand, especially from emerging markets, and the slowdown in the property sector that hit demand for steel, cement and vehicles."
"Property investment data also released on Saturday showed further declines in sales and new construction, while growth in sales of housing-related goods such as home appliances, furniture and building materials all slowed."
"Mortgage issuance in the first eight months fell 4.5 percent from a year earlier, worse than a 3.7 percent drop in January-July. Some would-be buyers have complained of long delays in getting loans as banks grow more cautious, while others may be holding off in anticipation of further price declines."
My added comment:
In this recent interview with King World News, John Mauldin of Millenium Wave Investments discussed his concerns that a "macroeconomic mistake" by China could lead to sharply lower growth rates than expected there. He says this "will change world cash flows and world commodity flows". Jim Rickards lists a major slowdown in China as one of his 7 signposts to watch for leading to major monetary system change. Some problems he predicted are discussed in the Reuters article linked above.
As we get more and more news indicating the global GDP may fall well below expectations lead by China, the Eurozone, and perhaps the US, we watch to see what Central Bank policy makers will do. They have already flooded the world with trillions of dollars of stimulus to try and get growth moving up. If that is failing, what do they do next?

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