“Inevitable” China recession to hit rest of world

Kenneth Rogoff, professor of economics and public policy at Harvard University and former chief economist of the International Monetary Fund, wrote last week that a growth recession in China is inevitable and that it is likely to have a major global impact.

“A recession in China, amplified by a financial crisis, would constitute the third leg of the debt supercycle that began in the US in 2008 and moved to Europe in 2010,” he wrote.

Rogoff added that “a Chinese slowdown that spreads across Asia could paradoxically lead to higher interest rates elsewhere”.

In the US, this could “cause debt service to crowd out needed expenditures in other areas”.

Dick Bove, chief financial strategist at Rafferty Capital Markets, also said last week that higher interest rates could cause a recession in the US, but suggested that it would be mainly due to the Federal Reserve's interest rate hikes.

However, Sri Kumar, president of Sri-Kumar Global Strategies, said that it is too late for the Fed to change course. “It is already baked in in terms of the future outlook of the economy,” he said.

“The Chinese developments with respect to debt, with respect to the trade war, are going to have a much bigger impact on 2019 than the Fed anticipates,“ he said.