The two big reasons to doubt the global boom


The writer, chief global strategist at Morgan Stanley Investment Management, is the author of ‘The Ten Rules of Successful Nations’

Although economists expect the reopening boom in the global economy to erupt in the coming quarters, there are two increasingly urgent reasons to question its strength and length: China and the United States. The two superpowers are the locomotives of global growth, but the cracks appear in their economic engines.

China alone has accounted for more than a third of the world’s economic growth in the last five years. Today a 1 percentage point slowdown in China hits a third of a point of global gross domestic product growth, so the world has reason to worry when Beijing tightens its grip. It happened, with the repression of the technology sector.

In recent years, as the former industries of the economy of the raw materials and manufacturing sectors have become dazzled by debt and decline, China’s boom has been sustained by a new one. economy, concentrated in the technology sector. Over the past decade, China’s share of China’s digital economy has quadrupled to a staggering 40 percent.

But the technology giants could pose a permanent challenge to the party in government at a time when it is trying to revive the socialist values ​​of the early revolutionary years. China had no magnate worth more than $ 10bn a decade ago; now it has nearly 50. Over the past year, China has generated 238 billionaires, more than twice as many as any other country. Most of this wealth is born in technology.

Repression was launched as a whole move to contain monopolies, or as a state offer to gain control of big data. However, it is also an unsurprising response from the communist party to this unprecedented explosion in wealth and inequality.

This new campaign follows an old pattern, going back at least to the tsar of the economy Zhu Rongji in the early 1990s. China has grown as an economic superpower in the last four decades as the state has grown. withdrawn, freeing capitalists to generate growth. But sometimes state managers intervene to curb capitalism when its apparent excesses – of corruption or debt bubbles or inequality – grow too blatantly for its pleasure.

Often the campaign is accompanied by a slowdown in the economy but it ends before the damage goes too far. Almost a decade ago, Beijing launched a massive anti-corruption action that toppled many wealthy tycoons, who were soon replaced by a new breed of tech tycoons.


This time the stakes seem higher. It’s hard to see how any other sector could compensate for a shock to the digital economy, and the damage is already clear. Since the crackdown began, the market capitalization of Chinese technology has fallen by a third, or around $ 1tn. The rise of new tech unicorns is dry. And it’s not clear whether Beijing is ready to back down, given how powerful the technology giants have become and the widespread belief that data is the new gold.

The United States is the world’s second-largest economic engine, accounting for about one-fifth of world growth in the last five years. Many forecasts assume that the global recovery will receive a huge boost from the $ 2.5 tonnes in additional savings that Americans squirreled during the pandemic and presumably will spend now when the economy fully reopens.

However, this is not how consumers have behaved in the past.

As a recent article by Barron pointed out, excess savings have been released into spending spending only in nations that have been defeated and destabilized in war, where consumers feared their currency could soon be rendered useless. In the United States, the last major episode of forced savings was rallied in World War II. America has won and, rather than spend wildly after the war, Americans have been sitting on these savings for years.

Conditions are similar now. Americans have chosen to spend only about a third of their pandemic stimulus checks, saving or paying their debts with the rest. The new Delta variant threatens to reinforce this precaution.

The United States is also approaching a “fiscal cliff”. The new government spending will fall sharply in the coming months. Most economists rely on strong consumer growth to pick up slack. But the story is not on his side. After a stimulating sugar run, growth tends to pick up quickly.

Signs of engine problems are flashing in China and the United States, which in recent years have accounted for more than half of world growth. While the heated debate on financial markets is focused on whether the inflation lag will be transitory, it is time to reflect on the possibility that the economic boom will prove more transitory than expected.

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