A global economy that until recently was humming has broken down, a sharp contrast to the picture just a year ago when the world was experiencing its best growth since 2010 and seemed poised to do even better.
Already, builders in the United States are erecting fewer single-family homes. German factories are sputtering, and in China, retail sales are growing at their slowest pace in 15 years.
The sudden slowing has fed into a global financial sell-off that has driven several U.S. stock indexes into or near "bear market" territory with losses of more than 20 percent. Stocks fell sharply Monday near the end of what is shaping up to be Wall Street's worst December since 1931.
The economic turmoil was on President Trump's mind even on Christmas Day, when during an Oval Office appearance, he cast fresh doubt on the record of Federal Reserve Board Chairman Jerome H. Powell, whom he has increasingly blamed for the market weakness.
"Well, we'll see," the president said when a journalist asked whether he had confidence in Powell. "They're raising interest rates too fast; that's my opinion. But I certainly have confidence. . . . I think that they will get it pretty soon. I really do."
The selling has caused a frenzy of unusual activity in the Trump administration, where efforts by Trump and Treasury Secretary Steven Mnuchin to allay fears seem only to have inflamed them. Political turmoil at the highest level in the United States and other advanced economies — epitomized by the partial shutdown of the U.S. government and street protests in France — is further feeding investor anxiety.
Additional forces threaten to turn what had been a gradual global slowing into something more serious. Central banks that went to extraordinary lengths to boost growth after the global financial crisis have become less supportive — with the Fed announcing another increase in its benchmark interest rate last week. And tensions over Trump's "America First" trade offensive are sapping business confidence on multiple continents.
"The theme coming into this year was, everything was synchronized; everything was good everywhere," said Torsten Slok, chief international economist for Deutsche Bank Securities. "Now everything is not good everywhere."
That is only a slight exaggeration. Outside of the United States, which had estimated economic growth of 2.7 percent in the fourth quarter, according to the Atlanta Federal Reserve Bank's "nowcast," the picture is increasingly gloomy — and most economists say the U.S. economy will slow in 2019.
For the past month, economic data in the United States, Japan and the euro zone consistently has failed to meet analysts' expectations, according to a Citigroup Global Markets index of economic surprises. Chinese results also began disappointing on Dec. 10 amid signs that the economy is slowing more sharply than policymakers had anticipated.
[A new Cold War with China?]
The adverse signs are enough for economists such as Megan Greene of Manulife Mutual Funds to warn of a "synchronized slowdown." Few economists expect an outright recession in the United States or a "hard landing" in China, where the authorities are trying to manage a gradual deceleration.
But anemic performances by the global economy's main engines could shake already stressed political systems in several countries, including the United States, where Trump will be preparing to rev up his reelection campaign.
"The political risk in a slowdown or even recession in 2019 is of stirring up already worrisome levels of nationalism," George Magnus, author of "Red Flags: Why Xi's China Is In Jeopardy," said via email. "Quite aside from resolving the issue about what macro tools to use in such circumstances, the political temptation to raise barriers, including trade, might get still stronger. China could be especially volatile."
In the United States, despite nearly a decade of uninterrupted economic growth, nearly 55 percent of Americans say the country is on the wrong track, according to the RealClearPolitics polling average. A sharp economic slowdown could short-circuit belated rewards for workers who are receiving average annual wage increases of 3.1 percent, the highest mark in nine years, according to the Bureau of Labor Statistics.
"If that doesn't continue, you'll see continued domestic political polarization," said Peter Harrell, a senior fellow at the Center for a New American Security. "Clearly, a slowing economy is a huge concern to the Trump administration."
An economic slowdown — coupled with tumbling stock prices — could also make the president more amenable to a quick deal with China in the months-long tariff war, Harrell said.
"They are getting nervous about the markets and nervous about the slowing in the economy, and there's a similar reaction in Beijing," he added.
The souring economic outlook can be seen on the bottom lines of multinationals such as FedEx. The global package-delivery company saw its share price sink last week as investors were spooked by executives' downbeat forecast.
"Internationally, economic strength seen earlier this year has given way to a slowdown," Rajesh Subramaniam, a FedEx executive vice president, said on a conference call for analysts. "The peak for global economic growth now appears to be behind us."
Though company officials said the shipping business remains good in the United States, sluggish orders in Europe and China forced FedEx to lower its earnings guidance for next year and launch a voluntary employee buyout designed to save up to $275 million annually.
FedEx illustrates how economic weakness outside the United States is rippling through the corporate world.
In Europe, German auto production has been disrupted by the introduction of revised emissions testing regulations that took effect Sept. 1. Third-quarter profits at BMW were down nearly 24 percent. Overall industrial production has declined in seven of the past 11 months.
Italy's new populist government, meanwhile, is locked in a budget dispute with the European Union, even as its economy sinks into recession. In Britain, protracted negotiations over the country's divorce from the European Union., known as "Brexit," is prompting banks such as JPMorgan Chase to shift some jobs to countries that use the euro, which Britain never adopted.
In China, authorities have been trying to wean the economy off a reliance on ever-higher debt totals. That was expected to lead to slower economic growth, but the U.S. imposition of tariffs on more than $250 billion in Chinese imports has worsened the downturn.
[China may have more staying power in trade war]
"Historically, the global business cycle is not entirely synchronized," said Andrew Kenningham, chief global economist at Capital Economics in London. "But the world might be becoming a bit more synchronized."
One major economic shift — the 41 percent decline in oil prices since early October — will produce winners and losers. Every penny of decline in the pump price of a gallon of gas leaves American consumers with an additional $1 billion to spend on other goods and services, according to Slok.
But lower prices will sap investment spending by oil and gas companies in the United States and elsewhere. The loss of income for major oil-producing nations that carry heavy foreign-debt loads will outweigh the consumer gain, Carl Weinberg, chief international economist at High Frequency Economics, wrote in a research note.
"The global economy — its financial and economic stability and its growth path — will be riskier on this redistribution of income," he wrote, citing upheaval in Venezuela and Nigeria and Saudi Arabia's growing debt burden.
The Trump administration's goal of 3 percent annual U.S. economic growth for several years appears to be fading, with the Federal Reserve lowering its 2019 forecast to a 2.3 percent annual rate, down from this year's expected 3 percent figure. The Fed also has backed away from plans to raise interest rates three times next year.
"The economy isn't running hot. It is cooling, and this is making the Federal Reserve more cautious about raising interest rates too high," said Christopher Rupkey, chief financial economist at MUFG Union Bank.
Though almost all economists expect the economy to continue growing through 2019, there is now a roughly 1-in-6 chance of a recession over the next 12 months, the highest likelihood since the recovery began in mid-2009, according to the New York Fed.
Kevin Hassett, the head of the White House Council of Economic Advisers, disputed the consensus view that the U.S. economy has peaked. In a briefing for reporters in mid-December, he said computer manufacturers are having a hard time keeping up with orders, suggesting that they would soon invest in additional factory equipment.
"The people who said we couldn't have 3 percent growth last year are saying it about next year, and I [think] that they're as incorrect now as they were last year," he said.
In raising interest rates last week by a quarter of a percentage point, the Fed took note of shifting global conditions. The Federal Open Market Committee, the Fed's rate-setting body, added a sentence to its post-meeting statement, pledging to "monitor global economic and financial developments and assess their implications" for the United States.
"When we add a sentence like that, that's not just — that has meaning, it's indicating to everybody that we're very focused on that and very attuned to the possibility that this outlook may change in coming months and we're going to be very focused on studying that and open to reassessing our views," New York Federal Reserve Bank President John Williams told CNBC.
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PARIS – Forty years ago, on December 29, 1978, the 11th Central Committee of the Communist Party of China released the official communiqué from its third plenary session, launching the greatest economic-growth experiment in human history. In newspeak understandable to CPC insiders, the country's leaders, channeling the wishes of Deng Xiaoping, announced a series of unprecedented "modernizations" that would transform one of the world's least developed countries into a leading economic power
In 2014, China overtook the United States as the world's largest economy (based on purchasing power parity). Its per capita GDP, 40 times lower than that of the United States in 1980, has grown by a factor of 58, and is now just 3.4 times lower (according to IMF data). In effect, around 15% of humanity has experienced 10% average income growth every year for four decades.
But China's dizzying rise has also dispelled three leading myths about the impact of economic growth. The first is that growth reduces inequality and increases happiness. In 1955, the economist Simon Kuznets hypothesized that income inequality would increase sharply and then decline – in the pattern of an inverted "U" or a bell – as countries underwent economic development. Given the pace of China's economic growth since 1978, its experience refutes this claim more powerfully than any other case.
China, after all, is now one of the world's most unequal countries. For the last ten years, its Gini coefficient has hovered around 0.5, up from around 0.3 in 1980 (a coefficient of 1 means a single individual owns everything). In fact, the relationship between growth and inequality over time has followed a peculiar pattern: China's Gini coefficient has increased with growth, and decreased when growth has slowed.
Moreover, according to data from the World Inequality Database, the share of China's national income accruing to the richest 10% increased from 27% to 41% between 1978 and 2015, and doubled for the top 1%. At the same time, the share of national income going to the poorest 50% fell from 26% to 14%. These data are consistent with other sources showing that while per capitaGDP grew by a factor of 14 between 1990 and 2010, the top quintile's share of national income increased at the expense of the bottom four.
To be sure, these are relative inequalities, and China has undeniably reduced absolute poverty. Most Chinese once lived under conditions of high equality and high misery; today, they live in an unequal society where the income of the poorest 10% grew by almost 65% between 1980 and 2015.Given such progress, one might think the Chinese have also grown happier. But the opposite seems to be true. In a chapter for the 2017 World Happiness Report, Richard A. Easterlin, Fei Wang, and Shun Wang make a convincing case that while China's GDP has skyrocketed, its citizens' reported subjective wellbeing has declined, especially among poorer and older cohorts. Even more surprising, though Chinese subjective wellbeing remains below its 1990 level, it actually ticked up over the past decade, when growth was slower than in the 1990-2005 period.
The second myth dispelled by China's rapid growth is that economic liberalism eventually breeds political liberalism.Recall that in 1989, just months before Western liberal democracy appeared to have triumphed over Soviet communism, China crushed a student revolt in Tiananmen Square, killing some 10,000 of its own citizens. Since then, the country's political trajectory has not changed. If anything, the Chinese state's arbitrary and unfair exercise of power has become much more efficient.
Capitalism with Chinese characteristics implies the presence of a strong state in all areas of national life. While the technocracy facilitates economic expansion, the state's massive security apparatus muzzles civil liberties and political rights. Rather than becoming more democratic, China became a pioneer of the kind of authoritarian neoliberalism now seen in Turkey, Brazil, Hungary, India, and elsewhere.2
Lastly, economic growth can no longer be defended as the best environmental policy. In 2007, then-Premier Wen Jiabao famously described China's development model as "unstable, unbalanced, uncoordinated, and unsustainable," owing not least to its deleterious ecological impact. Still, the hope was always that economic growth would follow an "environmental Kuznets curve," thus preventing or at least mitigating a full-scale disaster. It has not.
Recent data show that China is now the largest extractor of natural resources in a global economy that is becoming ever more resource-intensive. In 2010, China represented 14% of global GDP, but consumed 17% of all biomass, 29% of fossil fuels, and 44% of metal ores. Its domestic consumption of all natural resources now accounts for one-third of the global total, compared to just one-quarter for all developed countries.
Moreover, China now contributes 28% of global carbon-dioxide emissions – twice as much as the US, three times more than the European Union, and four times more than India. Between 1978 and 2016, China's annual CO2 emissions grew from 1.5 billion tons to ten billion tons, and from 1.8 tons to 7.2 tons in per capita terms, compared to the world average of 4.2 tons.
As is well documented, water, groundwater, and air pollution in China has reached a crisis point. And that, incidentally, also poses a problem for those who believe that capitalism is the key driver of environmental destruction. After all, the most ecologically unsustainable country in history is nominally communist.
At the CPC's 19th National Congress in October 2017, Chinese President Xi Jinping spoke of a fundamental "contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life." China, he confirmed, was committed to the transition to "ecological civilization" begun by the 13th Five-Year Plan in 2016. Apparently, the greatest episode of economic growth in human history has ended.