Despite China’s slowdown, global growth should not be completely derailed, according to Williams but it is a headwind, with the pressure to preserve world growth now tilting back from the emerging to advanced economies.
At about 2% yoy, the gap this year between the advanced and emerging economies’ growth rates is likely to be the smallest since the dot.com boom in 2000, Williams said. “And two unknowns are now the extent to which leverage behind China’s equity positions dents activity, possibly via real estate; and the deflationary flow – via falling commodity prices, lower Asian exchange rates, and cheaper exports – to the G7,” he added.
Williams also pointed to how, should domestic debt strains build, China could run a quantitative easing programme.
“Meanwhile, the baton looks like it’s being handed back to the advanced economies to fuel world growth,” he said. “This means accelerating quantitative easing in Japan, the eurozone and Sweden, rate cuts in others and competitive currency falls, while China enacts an avalanche of stimulus measures sufficient to arrest the decline and avert market turmoil. If it doesn’t, the Fed’s rate tightening cycle could prove to be one of the shortest yet,” he added.
