Make the most of the present—the Chinese crash is comingby George Magnus / May 3, 2016 / Leave a comment
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Barely three months ago, those of a nervous disposition were claiming that another global recession was imminent, if not already underway, and that the Chinese economy was about to implode. On 11th February, as the FTSE 100 index reached a low of 5536, well below its ten-year high of 7070 in early 2015, some banks implored investors to sell everything except the safest, most boring government bonds. Now that the FTSE 100 has risen back to around 6240, wise souls who chose not to take that advice, as well as those who failed to act through inertia, can breathe a sigh of relief.
Although the FTSE, along with most European equity markets, hasn’t quite scaled its previous top, its performance has been respectable. But the US S&P500 index has hit its past peak, and even the battered sector of emerging market equities, represented in the MSCI EM index, has had a decent 20 per cent bounce. Oil and several other commodities have rallied. Last week, iron ore—a bellwether of the Chinese economy—was up almost 50 per cent since the start of the year. So is the global economic panic over?
Some indicators still look grim. In the United States, the economy rose just 0.5 per cent at an annual rate in the first quarter, after 1.4 per cent the prior quarter. In effect, it only marked time in these six months, with modest gains in consumption offset by weak investment, foreign trade, and lower inventory-building by companies. The Chinese government claims its economy grew 6.7 per cent in the year to March, though some observers had lower estimates. Japan’s economy contracted at the end of 2015, South Korea expanded by just 0.4 per cent in the first quarter, the same as the UK. The only reasonable performance came in the Euro Area where GDP is estimated to have risen by 0.6 per cent, or nearly 2.5 per cent at an annual rate, with noteworthy improvements in Spain and France.
Looking at the Euro Area, it is reasonable to argue that the global economy is not as badly…