Daniel Moss

China Is a Lone, Feeble Dove in a World of Hawks

The qualifiers keep coming for the global recovery. Cuts to growth projections arrive almost weekly and recession warnings are starting to multiply. A slump isn’t yet the base case, but it sure would be nice if China could lend a hand.

That doesn’t look likely. While China’s gross domestic product rose more than forecast in the first quarter, up 4.8%, the collapse in consumer spending during March suggests lockdowns in Shanghai and other major cities will extract a large toll. Data also show investment slowed and unemployment climbed. Traditionally, a cushion for challenging times in the US and Europe, China is in Covid-19 purgatory.

This doesn’t have to be fatal for the global economy; China shifting to a more sustainable level of growth has long been desired, in Beijing and abroad. Yet pursuit of a Covid-zero policy appears unattainable. Most countries are now “living with Covid,” which amounts to a squishy detente.

Another warning sign is that China hasn’t flooded the economy with stimulus, indicating this pandemic limbo could last a while. The central bank balked at reducing a key interest rate Friday, surprising analysts, and made only a quarter-point reduction in the amount of reserves banks are required to hold. Past cuts in lenders’ reserve ratios have usually been 50 basis points. The economy could use some juicing, officials have concluded, but not too much. “China would like to preserve policy room for long-term slowing in growth,” Bloomberg economist David Qu wrote in a note.

This is an awkward time for the global economy. The International Monetary Fund is all but certain to rein in its estimates for growth Tuesday when it releases its World Economic Outlook. “We will remain in positive territory for global growth,” IMF First Deputy Managing Director Gita Gopinath said in an interview with Bloomberg Television last week. “That said, we are in very, very difficult times — the pandemic is not over.”

The IMF projected in January that the global economy would expand 4.4% this year, down from an estimate of 4.9% in October. That figure isn’t terrible, but the momentum is going the wrong way. Economists have been doing more cutting lately than anything else. The IMF also frets about the impact of rising interest rates. About 60% of low-income countries are in “debt distress” or close to it, double the number that the fund was worried about back in 2015.

This would be a good time for the US to have a solid outlook. However, most economists are being asked to weigh the odds of recession. The culprits are usually the spike in energy prices after Russia’s invasion of Ukraine and the need for the Federal Reserve to ratchet up rates to stem inflation. Jan Hatzius, chief economist at Goldman Sachs Group Inc., put the chances of a contraction at about 35% over the next two years. Still, an American recession isn’t inevitable and soft landings do happen, Hatzius wrote over the weekend.

IMF meetings for the past few decades tended to be cluttered with commentary about the eclipse of American dominance, the ascent of China and the desirability of a global “rebalancing.” (Often accompanied by eye-rolling predictions about the decline of the dollar.) If it preserves the recovery, I’ll take some old-fashioned imbalance.