Concerns Of Global Recession Rise And China Slows

The list of reasons that show the global economic recovery is slowing grows longer by the day. The US employment and real estate troubles have extended into June after hopeful signs early in the year. The Conference Board Consumer Confidence Index fell sharply. Real estate prices and purchases have cratered now that the federal tax credit for home buyers has lapsed. ADP figures show anemic growth in jobs.

Europe has  even more significant problems.Moody’s recently said it may downgrade Spain’s debt from its “Aaa” status, the most recent in a long line of reviews of sovereign debt in the region by Moody’s and S&P. The ECB has had to create an emergency lending facility for the region’s banks. New austerity budgets and higher taxes passed by the parliaments in Spain, Portugal, the UK, and Greece could be undermined by voters and labor unions.

The weakness in Western economies has now clearly spread to China. The China Federation of Logistics & Purchasing reported that its Purchasing Managers’ Index fell to 52.1 in June from 53.1 in May. The consensus among analysts is that the number would be flat. HSBC’s monthly survey of purchaser activity in China showed a similar deceleration.

The problems with the Chinese economy are almost certainly caused by the beginning of what could be a double dip recession in the US, Japan and Europe. All these regions are suffering from high unemployment and are reluctant to spend more on economic stimulus packages that would add to ballooning deficits.

Although economists and leaders in the West have warned China that it needs to purchase more imports and rely on its own middle class consumers to drive its economy, that is not happening. China’s factory workers have struck to get better wages, but that will take a long time. Modestly paid Chinese workers  do not have the wherewithal to be aggressive shoppers.

Economists have hoped that China’s powerful GDP growth would help lift the world’s GDP out of its stupor.The value of the yuan, among other things, has made that more difficult. It turns out that China still relies too much on exports to the West for that to happen.

Douglas A. McIntyre