The debt-stimulus of China and the pro-business policy of Donald Trump have given a strong lift to the global economy, but the imbalances behind the façade of this economic expansion continue to grow. These detrimental development during the past 9 years is currently converging towards a “perfect storm” likely to engulf the global economy within two years.
The governor of the People’s Bank of China (PBoC) gave an unprecedented warning last Thursday. Dr. Zhou Xiaochuan warned that the Chinese economy could face a ‘Minsky moment’ in the near future, if China allows tensions to build up in the financial system any further. This is the strongest signal of a possible policy change in China till to date.
Economists have been somewhat slow to see the threat of China on the global economy, the threat we have been warning since March. Within the last two months, however, the debate has changed a lot. S&P cut China’s credit rating and even the IMF warned about the risks of China. The problems of China can be summarized in two figures indicating that the economy of China is both over-levered and over-invested.
We have published a new business cycle forecast. In it, we continue to analyze the world economy, which yields a troubling picture. In the report, we will show why the current recovery lies on unsustainable foundations and why we are closing into a massive downturn in the world economy, a global depression.
The global economic expansion is on its final leg. Signals from the US and from China indicate a slowing economic momentum. Overvalued asset markets have set a stage for a major global deflation. The risk of a global asset crash is growing.