More support for my views on the China shock being global today:
Just last month, economists at Wells Fargo estimated that if China’s total output dropped by a cumulative 12.5% over three years, US growth would dip 0.2 percentage point in 2025. And Nobel laureate economist Paul Krugman recently concluded that, as to whether a debacle in China similar to the US crisis of 2008-09 would would “pretty clearly” not result in major global spillovers.
A little-noticed study by the Federal Reserve published in 2019 offers a more cautionary perspective. Eight Fed economists at the time examined a scenario in which China’s growth fell 4 percentage points short of projections in a year. They predicted a global flight to safety by investors would send the dollar surging about 7% and cause both long-term Treasury yields and equities to tumble. US growth could in time drop more than 1 percentage point.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
