Red Sky In The Morning, China’s Warning

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What's going on?

Unsettling news on Friday out of China, which reported an economy growing at its slowest pace since the financial crisis almost a decade ago (tweet this). Compared to a year before, the Chinese economy grew 6.5% in the third quarter of 2018 – missing expectations of 6.6%.

What does this mean?

While most Western economies would kill for that sort of growth, it’s evidence that China is only moving further away from the days when its economy regularly expanded over 10% each year. The slowdown appears to be down to weaker domestic spending: car sales fell 7.1% in the past year, the steepest decline since 2002, and although investment in swanky infrastructure grew by 3.3%, that’s well down on a year ago.

Why should I care?

The bigger picture: The trade war stakes just got higher.

The global recovery from the financial crisis has been largely driven by China’s relentless expansion: companies have turned to the country to sell things like oil and computer chips in the face of subdued demand from Europe in particular. Now, a domestic slowdown in China could be aggravated by ongoing trade war as US tariffs begin to bite in the coming months – with one trade analyst predicting growth could slip as low as 6.0% next year. That could spell trouble further afield…

For markets: Tougher times could be ahead.

Investors have had a tough time with China this year. There have been wild swings in the stock market, which is sitting near four-year lows, and the local currency, the yuan, has taken a bruising. The country’s financial chiefs are trying to stem the bleeding by singing from the same hymn sheet in a rare coordinated plea to reassure investors. Chinese regulators said that they’ll introduce measures to calm markets, adding that the stock market rout was abnormal and that the country’s economic fundamentals were solid. Investors around the world will be hoping that they’re right.

Originally posted as part of the Finimize daily email.

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