Chinese trade data for march is due out today. Traders and economists will be poring over it to see what it tells us about the state of the Chinese economy and where it is in terms of the economic slowdown underway.
But Hans Redeker, Morgan Stanley Investment management’s global head of FX strategy won’t be among them. It seems Redeker has already declared his verdict on Chinese growth. Writing in Morgan Stanley’s Global Strategy Outlook released overnight Redeker highlights just how sharply history suggests the Chinese economy will lose momentum and slow down:
Scholars of Japan and the Asian Tiger economies’ conversion from being supply to demand-driven have made two observations. First, economies seeking to rebalance lose significant growth momentum. Second, the commodity demand of these economies collapsed as rebalancing progressed. The world’s largest commodity customer, China, is now undergoing rebalancing. Commodity currencies will likely remain under selling pressure, not only suffering a terms of trade-related income loss, but will also likely have to deal with the non-commodity sector suffering due to poor competitive positions. Commodity-producing countries will likely have to engineer internal and external devaluations to get back on track.
That is the scariest paragraph I’ve read in the recent Chinese downturn both for Chinese growth itself and also for the impact this is likely to have on Australia, local companies doing business with China, and the Federal government’s budget coffers.
At least there is a silver lining in Redeker’s bearishness for the Australian economy. Morgan Stanley has a forecast for the Aussie dollar against the US dollar of 66 cents for Q1 2016. That should cushion some of the economic downside.