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FX MACROECONOMICS Could China Bounce?


Ciaran Mulhall looks and into how 2019’s theme of monetary easing could transmit into economic activity further afield


We concluded our last article with:


“For the rally in risk assets to be sustained, we now need to see some improvement in non-US economic data (particularly China and Germany) – we wait and watch, but we would remind the doom merchants that growth is the norm, recessions are actually relatively rare and a deep recession like the one we saw in 2008/2009 even rarer.”


We thought it worth exploring this idea a little more and then hopefully tying it back to what it means for our


50 FX TRADER MAGAZINE April - June 2019


investment outlook – important to our readers who are also investors in our Global Total Return Fund.


Contrary to popular belief, political risks and trade wars are not the greatest drivers of the global economy and thus ultimately the price of risk assets. Credit demand growth plays a far more significant role - a lower flow of new credit (lack of demand) in the economy generally means lower GDP growth. Tis is seen most starkly in economies where capital markets are somewhat less developed – China


being a prime example.


Te China authorities (both fiscal & monetary) have been “managing” the transition of the second largest economy in the world, from a global manufacturing powerhouse to a more domestically focused economy that could accommodate their growing middle class. While the authorities’ tool box will probably expand in the coming years, so far, their strategy has been to use the availability of credit (or credit impulse) to support the economy when required and to slow


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