Changing Global Markets - Luke


Luke Kirchner

Mr. Roddy

IHSS

29 January 2019


                                                Could The World Economic Growth Slow?

     Recently a report was issued that explained how China’s ‘slowdown’ could have massive effects on the world economy and growth in many fields. Due to the problems in China right now “...world growth could slow to a decade low of 2.3% in 2019 if Chinese growth slows sharply and could drop below 2% in the event of a combined slowdown in China and the U.S.” (Slater, Payne), which sparks many new theories about where our world economy will be in X number of years. The first indication is the earning fallout in major companies in the U.S. that have large markets in China. One example is Caterpillar, a construction vehicle and equipment supplier. “Shares of Caterpillar Inc. CAT, +1.74% slumped Monday after the Deerfield, Ill.-based heavy-equipment maker blamed weak demand from China in part for sales that badly missed Wall Street expectations” (MarketWatch), which was a shock to many investors.

     Following similar patterns, Apple warned of low sales due to the weakness of sales of the iPhone. Also, repercussions from the United States Government shutdown are only started to recover, but because of China’s weakness, it is hard to predict what markets might do. This article explained some dangers of China’s changing economy and how this can directly influence our U.S. stock markets.

  • “Weaker domestic demand growth in China cuts imports of final goods (consumer and investment goods) from the rest of the world (ROW).” 
  • “Weaker Chinese export growth reduces demand for imports of intermediates and raw materials from ROW, a significant channel given the relatively high import content of Chinese exports.” 
  • “Weaker Chinese demand pushes down prices of key global commodities like iron ore and copper, inflicting terms of trade losses on exporters of these products (mostly emerging markets).” (MarketWatch) 

     China’s imports from the U.S. have now dropped to a new low since 2016. Goods imports are down 30% on year-over-year in December 2018, and is predicted to slightly fall in the coming weeks. Economists have said that their baseline forecast for the Chinese growth is that it will ‘bottom out’ in the second quarter but not rebound, leading to world growth of 2.7% in 2019, dropping from 3% last year. In a more significant, extreme scenario, both the United States’ and China’s GDP could drop 2 percentage points which would result in a 1.5 global GDP hit. This could put global growth at 1.7% year-over-year and, even worse, could lead to a global recession.





                                                               Works Cited


Watts, William. “Here's How Hard China's Slowdown Could Hit Global Economic Growth.” MarketWatch, MarketWatch, 29 Jan. 2019, www.marketwatch.com/story/3-ways-chinas-pain-could-slam-the-brakes-on-global-economic-growth-2019-01-29.









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