New figures released by the Commerce Department show that the US economy slowed to a virtual halt in the final three months of 2015, its annual rate rising at just 0.7% amid signs of a global economic slowdown. Consumers and businesses alike scaled back their spending and US exports were reduced. The lower-than-expected rate is likely to fuel concern that gains made over the last six years are now losing ground.
Less than a month into the New Year and global markets have already experienced something of a rollercoaster ride. Investors returning to work after the Christmas break were brought up sharply as markets in Europe and the US endured some of their steepest losses for decades, sparked largely by fears over the continuing rout of the Chinese economy where sluggish manufacturing figures and the free-falling yuan triggered the ‘circuit breakers’ that resulted in trading being temporarily suspended. Many markets seem to be edging dangerously close to ‘bear’ territory – indicating a fall of 20% or more from their most recent peak.
With businesses poised for news of an interest rate rise this month, the world’s economy seems to be pulling in two directions. A gentle nudge from 0.25% to 0.5% may not seem like a major move for the Federal Reserve but it’s a move that would have sparked anxiety a year or so ago and will mark the transition towards a more optimistic outlook in the US.
Chinese manufacturing activity fell to a six-year low in the latest chapter of the slowdown in growth currently being experienced by the world’s second-biggest economy. China’s president, Xi Jinping, was swift to defend his government’s stock market intervention in a speech delivered in Seattle during his recent state visit to the US. He claimed that although the economy was ‘under pressure’, it was, nevertheless ‘on the way towards growth’ and that the stock market had reached a ‘phase of self-recovery’.
It’s not a view shared by everyone. After an average annual growth rate of 10% for three decades, China’s economy has slowed significantly. Last year it was just 7.4% – with many economists believing the true figure is to be good deal lower. IMF forecasts stand at 6.8% for next year.