The Last 30 Years of Global Economic History Are About to Go Out the Window
Over the last 30 years, a near constant flow of cash has inundated China and other emerging markets. It has lifted those economies, pulled hundreds of millions of people out of poverty, and dictated corporate expansion plans worldwide.
That wave is now ebbing.
This year will see the first net outflow of capital from emerging markets in 27 years, according to the Institute of International Finance, a trade group representing international bankers. The group expects more than $500 billion worth of cash previously invested in things like Chinese factories, Brazilian government bonds, and Nigerian stocks to cascade out of such markets this year.
In a profound change of narrative for both the global economy and markets that are closely tied to it, the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence. And it’s even tougher to imagine anything else like China—a billion new consumers joining the global economy—emerging any time soon.
GDP growth in the People’s Republic fell to 7% per year in the second quarter, according to official numbers—some of the most most sluggish growth since the 2008 global financial crisis.
And most analysts say even those numbers should be taken with a handful of salt. For instance, economic forecasting firm Capital Economics estimates that GDP in the first half of 2015 grew not at 7% year-over-year, but at just above 4%.
Of course, the slowdown in China isn’t confined to China. Over the last 30 years, countries worldwide have built their economies to service the needs of the People’s Republic. Brazil would be a case in point.
Weak Chinese demand hurts China’s suppliers…
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