The world's most disappointing easing case - New Style Motorsport

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The qualifiers for the global recovery keep coming. Cuts to growth projections arrive almost weekly and recession warnings begin to multiply. A recession isn’t the base case yet, but it sure would be nice if China could lend a hand.

That doesn’t seem likely. While China’s gross domestic product rose more than expected in the first quarter, by 4.8%, the collapse in consumer spending during March suggests that lockdowns in Shanghai and other major cities will take a heavy toll. The data also shows that investment slowed and unemployment rose. Traditionally a cushion for hard times in the US and Europe, China is in Covid-19 purgatory.

This does not have to be fatal for the global economy; China has long been wanted to shift to a more sustainable level of growth, in Beijing and abroad. However, the search for a zero covid policy seems unattainable. Most countries are now “living with Covid”, which amounts to soft détente.

Another warning sign is that China has not flooded the economy with stimulus, indicating this pandemic limbo could last for a while. The central bank resisted cutting a key interest rate on Friday, surprising analysts, and made only a quarter-point cut in the amount of reserves banks must hold. Previous cuts in lenders’ reserve ratios have generally been 50 basis points. The economy could use some juice, officials have concluded, but not too much. “China would like to preserve policy space for a long-term growth slowdown,” Bloomberg economist David Qu wrote in a note.

This is a difficult time for the global economy. The International Monetary Fund is almost certain to curb its growth estimates on Tuesday when it releases its World Economic Outlook. “We will stay in positive territory for global growth,” IMF First Deputy Managing Director Gita Gopinath said in an interview with Bloomberg Television last week. “That said, we are in very, very difficult times: the pandemic is not over.”

The IMF projected in January that the global economy would expand 4.4% this year, down from an estimate of 4.9% in October. That number isn’t terrible, but the momentum is going the wrong way. Economists have been making more cuts lately than anything else. The IMF is also concerned about the impact of rising interest rates. About 60% of low-income countries are at or close to “debt distress,” double the number the fund worried about in 2015.

This would be a good time for the US to have a solid outlook. Yet most economists are asked to weigh the odds of a recession. The culprits are usually the rise in energy prices after the Russian invasion of Ukraine and the need for the Federal Reserve to raise rates to curb inflation. Jan Hatzius, chief economist at Goldman Sachs Group Inc., put the chances of a contraction at around 35% over the next two years. Still, a US recession is not inevitable and soft landings do happen, Hatzius wrote over the weekend.

IMF meetings in recent decades have often been chock-full of comments on the eclipse of US dominance, the rise of China, and the desirability of a global “rebalancing.” (Often accompanied by jaw-dropping predictions of a falling dollar.) If you preserve recovery, I’ll take some old-fashioned imbalance.

More from this writer and others at Bloomberg Opinion:

• Is the recession the price for standing up to Putin?: Daniel Moss

• The Fed has made a US recession inevitable: Bill Dudley

• China’s leaders refuse to take Covid ‘lying down’: Shuli Ren

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Daniel Moss is a columnist for Bloomberg Opinion who covers Asian economies. Previously, he was executive editor of Bloomberg News for the global economy and led teams in Asia, Europe and North America.

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