China’s Collapse ‘Will Bring Economic Crisis To Climax In 2012’
By Larry Elliott
A looming hard landing in China will bring the financial and economic crisis of the past five years to a climax in 2012, one of the City of London’s leading analysts has warned.
Albert Edwards, head of strategy at Société Générale and one of the UK’s leading “bears”, said the next 12 months would be the “final year of pain and disappointment”.
Predicting a sharp slowdown in activity in the world’s fastest-growing emerging economy, Edwards said: “There is a likelihood of a China hard landing this year. It is hard to think 2013 and onwards will be any worse than this year if China hard-lands.”
Although China emerged rapidly from the downturn of 2008-09, Edwards said the recovery had been the result of a massive reflationary package by the Chinese government. Beijing, he added, could not afford another big stimulus to offset a weakening of the economy. Falling imports have led to a widening of China’s trade surplus, but Edwards said exports were set to slow and a trade deficit was looming.
He added that despite the recent run of more upbeat economic news from the United States, the risk of another recession in the world’s biggest economy was “very high”. Growth had slowed to an annual rate of 1.5% in the second and third quarters of 2011, below the “stall speed” that historically led to recession. It was unlikely that the economy would muddle through, Edwards said.
China has grown by around 10% a year on average over the past two decades, making it the world’s second-biggest economy, but the threat of a double-dip recession in the west, coupled with signs of over-heating in the Chinese property market, have caused some analysts to predict severe problems ahead.
S&P TO ASIA: You’re Next
By Sam Ro
Days after unleashing a wave of downgrades across Europe, S&P is now warning that the ratings of Asia-Pacific sovereigns are increasingly at risk.
This is according to a Dow Jones interview of S&P’s Chief Credit Officer Ian Thompson (via Wall Street Journal).
“It’s clear global risks have increased and it’s going to be a more challenging operating environment, even for the Asia-Pacific region,” said Ian Thompson, senior managing director and chief credit officer at S&P, in an interview Monday. “A dislocation in global funding markets also has the potential to damage credit in Asia-Pacific.”
The primary concerns for Asia are slowing export demand from Europe and a tightening of lending markets should Europe’s debt woes continue to worsen. On the bright side, Thompson noted that China should avoid a hard landing.