China’s Economic Slowdown May Be Sign of Recession

August
17

Written by: Jon McGraw

ChinaStock markets in the United States got off to a good start last week, heading higher before stumbling over China’s currency news.

China, which has one of the world’s largest and fastest growing economies, is experiencing a slowdown in economic growth. The Economist reported that data released last week showed “… an 8 percent fall in Chinese exports in July and a 5.4 percent drop in factory-gate prices. Output prices have fallen for 41 straight months, a symptom of overcapacity in much of China’s heavy industry.” MarketWatch suggested China may be in (or on the verge of) recession.

In an effort to slow its slowdown, China announced an unexpected devaluation of its currency, the renminbi, last week. Don’t confuse the terms renminbi and yuan. Renminbi is the name of China’s currency. Yuan describes a unit of that currency. For instance, when shopping in China, you would not ask how many renminbi you owed; you would ask how many yuan you owed.

Barron’s questioned whether China’s relatively small currency adjustment would be enough to help its economy and speculated last week’s devaluation could be the tip of the iceberg:

“One wonders what a 3 percent adjustment in the yuan will do to spur China’s economy … To a longtime observer of finance ministers and central bankers, the claim that the initial moves to tweak currencies will suffice is a familiar refrain. The larger the underlying imbalance, the larger the eventual exchange-rate adjustment.”

A Fed spokesman told The Wall Street Journal that China’s new currency policy has significant implications for the world economy and that it probably won’t affect the Fed’s impending rate hike.

The currency devaluation didn’t have a sustained effect on U.S. stock markets last week. Major U.S. stock markets finished the week higher. China’s benchmark national index was up for the week, too.

Data as of 8/14/15 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.7% 1.6% 7.0% 14.2% 14.2% 5.4%
Dow Jones Global ex-U.S. -1.5 0.1 -7.6 5.1 3.3 2.1
10-year Treasury Note (Yield Only) 2.2 NA 2.4 1.7 2.6 4.3
Gold (per ounce) 2.3 -6.8 -14.9 -11.2 -7.8 9.7
Bloomberg Commodity Index -0.1 -13.4 -28.1 -14.0 -7.3 -5.8
DJ Equity All REIT Total Return Index 1.5 0.6 8.5 11.1 14.0 7.5

What Does the Future Hold?

It’s not stuff most of us think about every day, but we may soon be a lot more familiar with terms like brain organoids, megascale desalination, Internet balloons, liquid biopsies and more. At least, that’s what the MIT Technology Review reported in “10 Breakthrough Technologies 2015”:

“Not all breakthroughs are created equal. Some arrive more or less as usable things; others mainly set the stage for innovations that emerge later, and we have to estimate when that will be. But we’d bet that every one of the milestones on this list will be worth following in the coming years.”

Here are a few of the items included on the list:

  • Brain organoids: In greatly oversimplified terms, these are miniature brains that can be grown from an adult’s cells. They may help researchers better understand brain disorders and develop effective treatments.
  • Megascale desalination: The world does not have enough fresh water. One solution is seawater desalination. Thanks to engineering improvements, reverse-osmosis desalination has become cost-effective.
  • Internet balloons: Imagine 15-meter helium balloons with solar-powered electronics hovering 20 kilometers in the air (far above commercial airline flights) and making the Internet available to people who currently have no access.
  • Liquid biopsies: Someday soon, annual blood tests may help diagnose cancer early. Gene sequencing machines decode millions of fragments of DNA in the bloodstream, looking for specific DNA patterns that indicate cancer. Knowing the DNA mutation behind a cancer may also help physicians choose the most effective treatments.

It’s important to keep track of developing technologies because they have the potential to disrupt industries and change the way business is done.

Weekly Fun—Think About It

“Any sufficiently advanced technology is indistinguishable from magic.”

Arthur C. Clarke, British science fiction writer