The good news is that China will begin to come out of lockdowns at some point, and there will be an injection of a stimulus of some form by the authorities to reboot communities and the economy.
The light at the end of the tunnel is reasonably bright for China.
Do not expect a return to rampant growth, however. We have been forecasting for a year now that the China miracle growth period was well and truly behind us. China has now entered a mature capitalist system phase in many ways. This means growth rates of 2% to 5% are the new norm. Permanently.
This is the point many economists and commentators are missing. For China, in coincidence with Covid, this is not a temporary setback. This is a mature system permanently reset to lower levels of growth.
There is no cause for panic here. This is only as expected. The historical shift from agrarian to modern consumer capitalism has been nothing short of spectacular. The world can only congratulate and applaud China on this truly impressive achievement. It has been one of the main drivers of global poverty having halved in absolute terms over the past two decades.
The Yuan will continue to firm as an equal alternative to both the Euro and the US dollar as a reserve currency alternative or addition in the long term.
For the moment, and I would say for the next year at least, the Euro will remain under pressure. Both directly from the war in Ukraine and indirectly via inflation driving US interest rates sky-high.
Overall, expect the US dollar to continue to be the big lead for the remainder of this year.
My forecast for the Euro for this year remains a collapse through parity to around 0.97.
Europe will likely be in recession/risk of depression for the foreseeable future. Government stimulus measures that may occur in Europe will do little to reassure concerned consumers and business managers alike.
Energy prices, even scarcity at times, and of course food prices, as well as supply chain disruptions, will continue to impact the world, but all of this will be felt ever more intensely in Europe.
Europe is definitely entering a recession. The USA risks recession, which could see prolonged low growth become entrenched as the US Federal Reserve has failed to act a full year ago, now belatedly and mistakenly aggressively chases completely runaway inflation.
Then we have China, which may just dip into recession in the current environment, but probably has the rosier outlook on the other side of this lockdown slow-down.
Overall, for the Northern Hemisphere at least, we are looking at a recession in Europe, and a risk of recession in both the USA and China. With the addition of intensifying, not reducing, supply chain disruption. Global growth and trade will suffer as a result.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
