Monday, June 18, 2018

GLOBAL ECONOMIC SLOWDOWN IN H2 2018....


2018 H2 seems to be a tough time for the global economy. Slowdown seeds have been sown and the fruits are getting ready. Europe is completely into the doldrums. Brexit battle followed with Italy having a very inexperienced government followed with Germany struggling with its own government stability has just amplified the economic slowdown. Angela Merkel’s coalition partners – the Christian Social Union (CSU) is creating an immense problem for her stability. We have Donald Trump as topping over the ice of slowdown where his trade policies irrespective of what percentage of they contribute to his economy is already affecting productions of other countries. Germany is under very much under the nightmare of losing its most valuable market US.

China is under immense slowdown and it is busy is saving the global and Asian economy form another major recession.  Shadow banking ghost is being now slaughtered by the Chinese monetary and government therapist. Their economy is now under immense pressure externally as well as internally.  Bond issuance cancellation by China has grown significantly, April-47 billion yuan and in March 47.4 Billion. The combined debt of China which includes borrowing via loans and bond issuance is 13.2 trillion Yuan which is US$2.1 trillion as of March 2018. Please don’t compare the debt with other economies since every economy has its own macro dynamics ruling the same.

Investment in China has taken a massive blow and almost low to the 1990 levels. This means consumer segment will face slow down and manufacturing has already taken a setback. Banks are reluctant to fund and business loans have dried up. Cleaning the books of China was a good idea but Donald has turned that into a nightmare with its trade war and restriction of Chinese companies taking up stake and investments in the US. IPR has become a big threat and copy based economic growth of China now seems to be a difficult game.  Chinese companies shave to pay 2.7 trillion yuan of bonds and in the offshore segment during 2nd half of FY-18 they have to pay another 3.3 trllion yuan of trust product sets which are about to mature in the second half of the calendar year 2018. The global currency will be under immense threat of volatility. The corporate debt to GDP of China is 167% which is significant threat currently after Donald trump trade war. Always remember when manufacturing happen flow of capital keeps moving but when goods start getting dumped at ones warehouse things becomes difficult. China is focusing on de-leveraging the economy and that will come at a huge cost for the economy. Chinese banks are also under pressure of holding around 4.1 trillion yuan of bonds and govt is chasing the banks to offload and reduce the exposure. Shadow banking is under elimination but it will come at a cost for the Asian economy since the slowdown in China will affect other major economies too.

Brexit has created a threat for the other countries as the difference of opinion and unity of EU is broken which is a big threat for EU as a whole. Russia and U.S both are keen to exploit and find resources to turn things and rule within the EU economy. EU is broken and the pain is being heard very lightly currently as all focus is on the Donald Trumph trade war.

Trade war and protection policies will spook inflation and also slow down investments which leads to cut down on consumption pattern on the global landscape.  Commodity prices are already increasing and trade barriers would create massive volatility of the prices which will erode the profits. Zero interest rates days are over and whatever wage the US citizens got are on the way of depletion as higher borrowing cost eats up.  Global interest rates are scaling up and fragile manufacturing and trade outlook leads consumers to be on the sidelines.


The trust factor and no proper outlook of the different economies keep investors under immense pressure. Scaling up of interest rate spooks liquidation of risky assets and flight towards safer assets. 2018 end and beginning of 2019 would be massive slowdown phase keeping the global economic scenario in mind as developed currently. Asian bond market will need soon support as trillion of bonds are about to mature and repayment is tough game. The irony of bond issuance have been that bond buyers dont know what type of complex hybrid bonds have been issued.  Well very soon the world will come to know once the default happens.

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