August 29, 2016

If China has a hard economic landing it would mean a Global recession but successful rebalancing could provide a global economic boost

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs provides the following analysis.

China is the swing economy between a global recession or a moderate global boom

Continued deceleration of Chinese growth would have a much greater impact on an otherwise weak global economy than would be the case if the world were growing at something closer to its longer-term trend of 3.6%. Excluding China, world GDP growth would be about 1.9% in 2016 – well below the 2.5% threshold commonly associated with global recessions.

Every one-percentage-point decline in Chinese GDP growth knocks close to 0.2 percentage points directly off world GDP; including the spillover effects of foreign trade, the total global growth impact would be around 0.3 percentage points

What if China had a “hard landing”. Defining a Chinese hard landing as a halving of the current 6.7% growth rate, the combined direct and indirect effects of such an outcome would consequently knock about one percentage point off overall global growth. In such a scenario, there is no way the world could avoid another full-blown recession.

A successful Chinese rebalancing scenario has the potential to jump-start global demand with a new and important source of aggregate demand.

The world needs a successful China more than ever.







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