Some economists have warned of a possible “hard landing,” a scenario where Chinese growth slows enough to cause unemployment to spike.
The upshot of that, economists estimate, would spell financial instability for China and drain global demand, particularly in Asia.
“At this juncture, the principal downside risk concerns major emerging economies where the dataflow has remained poor and where the outlook is less promising,” writes UBS’s Larry Hatheway in a new note to clients. “The slowdown in China has already had clear negative impacts on commodity-producing economies, something that is likely to continue.”
But it’s not all bad news. Hatheway lays out five potential offsets to a Chinese slowdown.
- “We don’t think that long-term US rates will back up much further.”
- “Some moderate firming of growth in the developed world, and in Europe in particular, ought to offer support to export demand for many emerging economies.”
- “Market expectations for growth in the emerging bloc are arguably now very low. That should offer some support for financial market conditions in those same economies.”
- “Low inflation in most developed and emerging economies offers policy makers scope to respond to growth disappointments.”
- “And in that vein, recent policy statements from Chinese Premier Li indicate that policy makers in Beijing will aim for a minimum rate of growth of 7%, language underpinned by easing steps undertaken this week.”
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