This morning China announced its fourth-quarter GDP growth, coming in at 6.4%, matching market expectations, whilst adding the official economic growth for 2018 came in at 6.6%, the slowest pace of growth since 1990 (still a figure that the rest of the world would give their right arm for!). Although the headline figure may have been a little disappointing, there were bright spots included in the data release. These included retail sales, which rose 8.2%, and industrial production, where output grew 5.7% in December from a year earlier, also beating Novembers 5.4%, and above the market's expectations of 5.3%. Ning Jizhe, Chinese economist and director of the National Bureau of Statistics of China, said that although the current trade dispute with the U.S. had affected the domestic economy, he believed the impact was manageable and that China has ample room for macro policy support.
Also, after interest from a number of our investors, from today and continuing for the rest of the week we will be featuring extracts from our macro-economist Dr Robert S Gay’s latest piece ‘Why Do Economic Expansions End?’:
With the normalisation of US monetary policy and evidence of an economic slowdown emanating from China, attention is turning to whether the United States can escape a recession. Indeed, the flattening of the Treasury yield curve often is cited as a potentially ominous sign. Over the past four decades, recessions invariably ensued whenever short-term interest rates rose above long-term rates. Even a small inversion in this measure, such as the one that occurred in 2007, proved to be a precursor to the Global Financial Crisis. Granted, the lead time between inversion and the onset of recession has varied from about six months to one and a half years, but the consistent pattern begs the question of why this indicator has worked so well and whether investors should worry about a further flattening of the curve. Correlations, however, do not necessarily indicate causation, so it is worth asking why this relationship exists and as well as the broader question of why do economic expansions end….to be continued tomorrow.