Friday, April 20, 2012

Beware: A Chinese Recession Is Coming

My Feb. 28, 2011 column predicted that in China “a hard landing is likely” and “a recession in Europe is inevitable.” Both are ­unfolding.

China just reported its slowest quarter of GDP growth since 2009, with the economy growing at an 8.1% annualized clip from January through March of 2012, down from 8.9% in the final three months of 2011. Growth has been slipping steadily from the 11.9% pace in the first quarter of 2010, and Beijing seems unable to stop the slide at this stage of the game.

China’s response to the Great ­Recession was massive fiscal stimulus that amounted to more than 12% of GDP, twice the relative size of the U.S. package. Shock therapy worked last time around for China, nearly doubling GDP growth within a year, but it came with strong inflationary side effects. Food prices rose by double-digit percentages, stinging Chinese who live on subsistence ­incomes. Stocks stunk, Chinese savers couldn’t invest abroad, and banks paid negative deposit rates. Read more.......

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