China’s structural slowdown, deleveraging of the real estate sector and CoViD-19 resurgence amidst zeroCOVID policies, could dampen regional exports.
Growth is expected to slow down both in China, because of the structural slowdown and regulatory regime change.
Structural factors:
1) Demographic factors
- rapid slowdown in world population growth
- gradual aging of the world population
2) Declining TFP (total factory productivity)
3) Increasing inequality in income and wealth distribution
4) Other factors depressing aggreagte demand:
- gradual exhaustion of the globalization
- consolidation of new employment models: less job stability.
A structural slowdown, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour.
Cyclical slowdown in US:
1) Unemployment reaching record low.
2) wage inflation before the slowdown.
3) decreasing interest rates and flat yield curve due to monetary accommodation.
4) monetary policy with enough space to act; fiscal policy less effective.
A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. Such slowdowns last over the short-to-medium term, and are based on the changes in the business cycle. Generally, interim fiscal and monetary measures, temporary recapitalisation of credit markets, and need-based regulatory changes are required to revive the economy
3 shock in economy:
1) A monetary policy shock in the U.S.
Financial conditions in the US are of particular significance for developing EAP countries, especially those like Malaysia which rely more on short term capital flows. The risk of capital outflows, which could put pressure on their currencies, could induce premature financial tightening. A monetary policy shock in the U.S., assumed to increase interest rates by at least 25 basis points, is likely to hurt growth.
2) Specific shocks to economic activity in China.
Construction, constrained by efforts potentially to reduce leverage,
industry, by efforts potentially to reduce emissions; and
services, constrained by efforts to control CoViD-19 and monopolistic providers,
are each a significant destination for EAP value added.
3) Shocks emanating from the war in Ukraine and the related sanctions
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