ECONOMIC UPDATE: Global Economic Slowdown Has Begun
We maintain our forecast of worsening times ahead for Europe… thanks to its involvement in the Ukraine War and the effects of the sanctions its politicians put on Moscow which spiked inflation
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The global economic slowdown has begun. The facts are in the figures. Leading the downtrend is China, the world’s #2 economy, whose leaders caused the socioeconomic decay when they launched the COVID War during their Lunar New Year in January 2020, “The Year of the Rat.”
After imposing draconian zero-COVID policies for some three years, they have destroyed the lives and livelihoods of hundreds of millions across the nation.
As China’s National Bureau of Statistics reported yesterday, manufacturing and services activity continues to weaken as its manufacturing purchasing managers index was 49.3 in July.
Anything below 50 registers a contraction. On a slight up-note, but still weak, the nation’s non-manufacturing PMI came in at 51.5… down from 53.2 in June.
Barron’s noted yesterday that U.S. stocks are on a roll and there seems to be no end in sight. The message to Joe Schmuck the investor out there is: “Come on in, the water’s fine!”
With its Gross Domestic Product up just 0.8 percent in the second quarter, a slumping real estate market, weak construction, youth unemployment above 21 percent… the economic fallout is global, since it also damages foreign imports as Chinese businesses and consumers buy less.
On the up-note, with the yuan down and China being hit with deflation, it’s cheaper for consumers from other nations with stronger currencies to buy Chinese products. But the weak yen and a weak economy put more downward pressure on Chinese consumers to buy products produced abroad… especially from Europe which is a big supplier.
On another down-note, as a result of Washington’s extensive import restrictions that deny China access to advanced semiconductor products and high-tech components, its once-booming tech sector is now struggling. So far this year, on the high-end chip front, chip-manufacturing equipment imports fell by 23 percent and semiconductor imports are down by 22 percent.
TREND FORECAST: As history shows, China’s rapidly booming economy mirrors those of other nations—such as Japan which rapidly grew then collapsed in the 1990s.
Minus a wild card, such as a U.S./NATO/Taiwan war against China or a nuclear war ramping up as a result of the Ukraine War, etc., we maintain our forecast that the Chinese economy will become the world’s largest in the coming decades… or sooner.
And while China’s economy is expected to grow just 5 percent this year, it is a much stronger growth rate than the United States and Europe.
Also, while the U.S. hi-tech sanctions will hurt China in the short term, as we have forecast, the massive nation with the world’s largest population has the human and natural resources to rely on self-sustainability rather than depend on globalization.
Over There
Last week, following the U.S. path, the EU raised interest rates 25 basis points. And while Europe’s inflation has fallen to 5.3 percent, service inflation hit a new high at 5.6 percent and core inflation came in at 5.5 percent… way above the European Central Bank’s made-up 2 percent magic number.
Thus, while the EU registered an annualized growth rate of 1.1 percent in the second quarter, we forecast that if the ECB again raises interest rates… it will bring down the GDP into negative territory in the fourth quarter. The economic growth is minimal and as reported by the Financial Times, which quoted ING economist Bert Colign, “Excluding Ireland, Eurozone growth would have halved.”
Indeed, as a result of the big drug companies doing business out of Ireland—and with more of the world addicted/and or prescribed to swallow prescription drugs—its Gross Domestic Product spiked 13.7 percent.
Also, Germany’s economy—Europe’s largest, and the fourth largest in the world—stagnated in the second quarter, while Italy, Austria, and Italy’s GDP shrunk.
As for where EU interest rates are going, it is a guess. Christine Lagarde, the ECB head, warned that “there could be a future hike of the policy rate or perhaps a pause. A pause, whenever it occurs, in September or later, would not necessarily be definitive,” she said in an interview with the newspaper, Le Figaro.
From Bad to Better Bad
As we note above, Europe’s export slowdown with China plus higher interest rates which equal higher borrowing will push the EU back into recession by the fourth quarter. As we have said, it is summertime and the living is easy. The tourism boom will bring up third quarter GDP numbers, but the boost in the service sector is temporary while weak manufacturing continues its downward trend.
TREND FORECAST: We maintain our forecast of worse economic times ahead for Europe… thanks to its involvement in the Ukraine War and the effects of the sanctions its politicians put on Moscow which spiked inflation… and greatly diminished EU’s business dealings with Russia.
Indeed, even Lagarde said that “High inflation and tighter financing conditions are dampening spending.”
And thanks to the higher interest rates, not only has economic growth basically stalled and manufacturing greatly weakened, an ECB survey of European banks shows loan demand in the last quarter hit a record low.
Over Here
Again and again, as we keep forecasting, people are in a summer state of mind in the Northern Hemisphere and the living is easy. The masses are doing their best to spend what they can and vacation as much as they can… which is also driving up the GDP, especially in the service sector.
However, the money making manufacturing sector, which indicates where the economy is heading, came in at just 46.4. Any number below 50 signals contraction.
TREND FORECAST: Barron’s noted yesterday that U.S. stocks are on a roll and there seems to be no end in sight. The message to Joe Schmuck the investor out there is: “Come on in, the water’s fine!”
It’s summertime and the living is easy. The S&P 500 is up 20 percent on the year and the Nasdaq is up 37 percent, which is its best year since 1975.
But storm clouds are on the horizon.
“People are in a summer state of mind,” Gerald Celente said. “They don’t know what’s going on. The market is an artificial game. People are going to be spending more now, and then, we’re forecasting the end of September, October, you’re going to see the market start to go down.”