As the global economic expansion matures, there are an increasing number economists and analysts who are searching for the next trigger of what could be a global recession or in the very least, a polarization of growth. Many analysts are saying that the US economy, a continental economy, could move through the next 3 to 5 years unscathed, regardless of the health of Europe and Asia mainly on the massive Trumpian expansion that moves from strength to strength. We at Classiarius, like a growing number of market pundits, are concerned about the US – China trade war, and the possibility of the knock-on effect if trade in greater Asia is disrupted. But one analyst puts a different twist on this topic.
Mr Adair Turner, former chair of the UK Financial Services Authority (FSA), told CNBC that, “the sheer scale of the Trumpian expansion in the US could lead to inflationary pressures which produces faster increases in US interest rates than we anticipate.” This is a comment that we can all agree on – higher rates in the US drives the US dollar higher, weakens emerging market currencies and adds pressure to the deficits in Turkey, Argentina, Brazil and others.
However, Mr Turner points out that China, and its efforts to rebalance its economy economy were likely to prompt a slowdown in global economic growth. China is now attempting to focus less on exports and more on domestic demand to decrease its exposure to external threats. In short, China is now rotating its economy to resemble the US, thus making more able to shock the world than to be shocked by the world, a continental economy is resilient by nature.
So we have a lot to think about outside of the China transition from an export based economy to a domestic demand based economy…..which has been taking place for over 7 years.
So in the coming months, with 1. the US rate hike cycle possibly accelerating (this is negative for emerging markets), 2. concerns of an contagion of currency weakness from EM to Italy and southern Europe and 3. higher oil prices, 4. and very important, the possibility of a trade war and 5. this new view from Mr Turner that changes the calculus on China, there will be a lot of questions on global markets and despite the Trump expansion in the US, growing economic fears.