Last year I expressed the concern that the global economy of the future might be excessively influenced by a black box economy – China. But as 2016 has picked up the turmoil that 2015 started, it’s become clear that this is not the global economy of the future. It is the global economy we are dealing with now. And the fears over China have created a market environment of uncertainty – the market’s worst enemy.
A lot of people keep asking me what’s going on at the macro level. Unfortunately, I don’t have a very good answer because I don’t think anyone really knows how bad the situation in China is. We just don’t have reliable data from the Chinese government and so we have to make guesses about how bad things might actually get. But here’s what we do know:
- The situation in the USA is better than it gets credit for. With Manufacturing PMI at 52.4 for January, Services at 53.2, very low jobless claims readings and growing employment, the argument for a recession in the USA still looks highly questionable. The argument for a deep recession looks irrational.
- Europe remains unusually weak. The problems in Europe have been well documented and continual. Although there has been some relative improvement the structural problems across Europe appear well entrenched. Nothing new here.
- China looks very unstable, but no one knows for sure. This is the big question mark. I wish I had some reliable indicator of China’s future economic growth, but I’d be lying if I said I do and I suspect that most people who claim to know where China’s economy is headed are making highly suspect predictions.
The three legs of the global economy add up to a very uncertain future. China looks unstable with the potential for greater downside risk. Europe looks weak with little prospect of a lot of upside. And the US economy is just muddling through though things aren’t nearly as bad as the mainstream media might have you believe. I still don’t think we’re on the verge of a 2008 repeat, but that’s based on the assumption that China doesn’t unravel and that’s not a prediction I can make with any degree of certainty. So, of the three dominant legs, the one with the most potential for a significant impact is China. And so we’re in uncharted waters with the dominant theme being China and its influence on the direction of the global economy. Welcome to the new reality of the global economy.
Latest posts by Cullen Roche (see all)
Did you have a comment or question about this post, finance, economics or your love life? Feel free to use the discussion forum here to continue the discussion.*
*We take no responsibility for bad relationship advice.