Time to brace for bumpy ride ahead
The 6-percent plunge of the benchmark Shanghai Composite index on Tuesday is only the latest warning that, in spite of the Chinese government’s strenuous efforts to stabilize the stock market, a large correction in share prices could still be an imminent risk.
For those who are counting on China’s 7-percent economic growth to help sustain the global recovery, this is indeed a cause for concern. If Chinese policymakers cannot effectively stem panic sales, there is a real possibility that the turbulence in Chinese equity market could spread to make the country’s economic slowdown much broader and harder than expected.
However, if the world economy is to survive a bumpy year, that may be even more eventful in the latter part, policymakers around the world should better brace themselves for more financial and economic headwinds.
Both the devaluation of the Chinese currency and the massive chemical explosions that rocked Tianjin last week have definitely added to uncertainties over the growth momentum of the world’s secondlargest economy.
Latest statistics showing that Chinese house prices rose for a third consecutive month in July can hardly offset the gloomy data that China’s rail freight volume, a useful indicator of economic activity, fell 10.9 percent year-on-year in the same month
But China is not the only source of worries.
It was reported that Japan’s economy, the world’s third-largest, shrank at an annualized pace of 1.6 percent in the second quarter as exports slumped and consumers reduced spending, making it more difficult to lift the economy out of decades of deflation.
While a report from the Federal Reserve inWashington shows that US manufacturing output rose a healthy 0.8 percent in July after falling 0.3 percent the previous month, the Federal Reserve Bank of New York pointed out that manufacturing activity in NewYork state contracted in August at the fastest pace since 2009, pulled down by sharp declines in new orders and shipments.
Although it is hard to tell which one is closer to the US’ economic reality, such contradictory findings indicate that the international community should better take recent optimism about US economic growth with a grain of salt.
Worse, an autumn of US drama may be waiting since the US Federal Reserve is widely expected to start hiking near-zero interest rates before the end of the year.
September 30 will be the end of fiscal year and a possible government shutdown will loom if US politicians cannot agree on how to fund the government. And another possible showdown over the federal debt limit could come as US Secretary of the Treasury Jack Lewwarned Congress in July that they will have to act before the end of October.
In Europe, the Greek debt problem remains a risk factor that could result in lower regional and global growth.
The InternationalMonetary Fund cut its forecast for global growth to 3.3 percent this year, down from the 3.5 percent it predicted in April, but the emerging negative surprises around the world may necessitate another cut in the global growth target which is already the lowest since 2009.
It is a pity that such dim global growth prospects have so far failed to galvanize a sense of urgency for joint efforts by global leaders to coordinate their growth-boosting policies.
The IMF still expects global growth to improve to 3.8 percent next year, but, before that happens, the international community should brace itself for increasingly stronger headwinds in the second half of this year.
By renewing concerns over the state of the Chinese economy, the slump on China’s main Shanghai stock index on Tuesday signaled a timely warning to policymakers in China and other countries that rather than just hoping that the world economy will successfully bottom out much more needs to be done.