How China’s Slowdown Is Having Ripple Effects All Over The World

Chinese economic growth slowed to the lowest level since 1999 last year, expanding 7.7%.

Policymakers have recognized the need to rebalance economic growth and are now slowly transitioning away from a credit and export driven economy to one driven by consumer growth. Some argue that the recent crackdown on shadow banking and the money market rate spikes are part of this effort.

But what sort of ripple effects impact is all of this having on the global economy?

First, let’s take a look at economies that rely on China to consume their exports.

Bloomberg chief economist Michael McDonough tweeted this chart that shows the percent of country’s total exports consumed by China.

Read more:

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Tomorrow the ECB decision will surely bring some volatility.

None of my tickers are showing much action today. Yen crosses are down modestly but nothing compared to the volatility we’ve seen over the past few days.

FX moves

The euro tried the upside a few times today and will close out the day with some small gains but tomorrow the ECB decision will surely bring some volatility.

Draghi & Co can opt to do nothing or take action in three different ways:

  1. A 10-15 basis point cut in the main refi rate
  2. Switching to unsterilized bond purchases (QE)
  3. Negative deposit rates

The legality of option #2 is questionable. Any of those move would spark euro selling, partially because it implies more future action.

Ten days ago, the market was comfortable with a wait-and-see decision but soft inflation readings have put pressure on the ECB to act.

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