Beijing played a pivotal role in reviving global growth after recessions in 2001 and 2008. Things are very different now.
By Daniel Moss and cross-posted from Bloomberg.
U.S. recession indicators are growing stronger and there’s one bigger-than-usual reason why the world should be worried: China isn’t coming to the rescue this time.
In the past week alone, a gauge of U.S. manufacturing unexpectedly fell to its weakest reading in a decade and payrolls at private companies grew less than forecast. Economists are starting to wonder whether the U.S. has approached so-called stall speed, the slowest pace of growth without careening into a recession. The International Monetary Fund, meanwhile, will likely downgrade global growth estimates this month.
One of the engines that drove a global economic recovery after the last two downdrafts in America – the relatively shallow one in 2001 and the catastrophe that began in 2007 – was China. As the financial crisis escalated, Beijing opened a floodgate of credit and cut interest rates, which stoked demand for everything from Australian coal to German cars.
We’re unlikely to see anything like that this time. Beijing has shown little appetite for another round of massive fiscal stimulus as it atones for the profligacy of the last decade, which left a massive buildup of debt and fueled asset bubbles.
While Chinese authorities have been juicing the economy the past year, they have been very careful about how they go about it. Economists keep predicting cuts in the benchmark interest rate; but those haven’t been forthcoming, as my Bloomberg Opinion colleague Shuli Ren wrote recently. The People’s Bank of China has preferred trims to lenders’ reserve requirements, as officials focus on the best way to channel credit to certain sectors of the business world. Open-slather easing, it isn’t…