Global Growth Falling: First China, Now India

The central banks’ job of keeping this big, fat ugly bubble going is just going to get harder. Not only are they fighting record debt and falling demographic trends in the developed world – with my hierarchy of indicators all pointing down – they are fighting record debt in the emerging world and slowing growth there near-term, despite favorable longer-term demographic trends. For 2018, the growth rates in the leading emerging countries were lower than we’ve seen for a long time: China 6%, Indonesia 5%, and India 4.7%.

China has clearly been both the biggest contributor to global growth and to the eradication of poverty. But they have also been the greatest polluter. China has been on a highly stimulated urbanization explosion since the early 1980s, from 20% to 60% urban at a very rapid rate of just over 1% urban gains per year. But they have seen the greatest explosion of debt of any major country and overbuilding that makes past orgies in Japan and Southeast Asia look lame.

China’s peak growth rate was 15.3% in the 1st quarter of 1993. After falling off into around 2000, it surged again to 15.0% in the 2nd quarter of 2007 with a growth rate of 11.4% for that full year. After the global financial recession (GFC) into 2009 and a fall to 6% (a recession for China), it had one final surge to 12.2% growth into the first quarter of 2010. It has fallen steadily ever since now back to 6.0%, the lowest since 2009. Forecasts are for a fall to 5.6% in 2020. I think it’s likely to be lower than that, and then I see negative rates by 2022. That will be a depression for sure for China.

But India took the mantle after the GFC and reached a peak growth rate of 9.1% in 2016. Now that has fallen to 4.7% in the 3rd quarter of 2019. That certainly looks to fall further, although Modi is pushing a $1 trillion infrastructure plan for the coming years to help stimulate.

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China has the highest debt of any major emerging country, especially its whopping 168% of GDP in corporate debt – the most likely to default with $17 billion per year already in 2018 and 2019, and looking to rise rapidly. India is now having a lot of unrest over Modi’s anti-Muslim immigration policies; that can only weigh on its economy and consumer sentiment.

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