Time to brace for bumpy ride ahead

China Daily (Canada) - - NEWS IN REVIEW -

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.

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