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Relevant for GS & Essay:-
- China’s exports in December caught a winter chill, falling 4.4% on an annualized basis, while imports dropped 7.6%—the worst readings since 2016. This indicates further weakness in the world’s second-largest economy and falling global demand. This was worse than what many analysts had estimated, and comes against the backdrop of a trade war with the world’s largest economy. It signals that pain is already being felt in China after the US imposed levies on hundreds of billions worth of goods last year. The fact that the numbers released on Monday also showed that China recorded a record trade surplus with the US will only goad US President Donald Trump to intensify his trade war with China, given the unrelenting focus on this particular metric. It also mounts pressure on China to try and wangle a trade deal or at least a suspension of tariffs. “A trade recession is likely, in our view,” Raymond Yeung, chief economist at ANZ, said in a note, Reuters reported, predicting a period of export contraction similar to 2015-16. “The global electronics cycle remains the key driver of Chinese exports. A potential downturn in the sector poses the real risk to China’s external outlook even if China and the US reach a resolution on their trade dispute.”
- The global economy may face more headwinds in the coming months. According to the Organization for Economic Cooperation and Development, growth is cooling in the world’s major economies, particularly in Germany and now China, suggesting that momentum this year could be even slower than what has been predicted. The pessimism is justified by macro numbers coming out from the European Union, Japan and South Korea, among others. There are other uncertainties too, for instance, what shape Brexit will finally take and its fallout on other economies. Then there’s the government shutdown in the US, already marking the longest ever on record, which is wreaking havoc on local household budgets and economies. Add to that the worries over earnings by some of the country’s biggest banks and technology companies, and on the course the US Federal Reserve would take. India, too, is in the mix, weighed down by the weakest industrial production numbers in 17 months and disappointing corporate earnings. Monday’s inflation numbers also point to weaker economic growth. And the markets were quick to react, with most indices across Asia heading lower, showing up the fragility in investor sentiment.
- Clearly, this is no time for playing economic chicken. It is widely expected that the mandarins in Beijing will propose more measures to support the country’s economy if things don’t improve. That may prove to be a minor salve for the country. What needs to be done, though, is to stay the course on discourse. There was cautious optimism last week after mid-level talks between officials from Washington and Beijing. It works both ways—as the world’s largest exporter, China, obviously depends on overseas demand. On the other hand, its domestic demand also feeds exporters in other countries. In the larger interest of the world, then, a measure of stability is in order.
