china minsky 5_0
Here we go

Morgan Stanley released a note on China's "Minsky Moment". Yves Smith, Naked Capitalism blogger, makes a very interesting point about the timing and meaning of the report:

  • "This is an even bigger deal than you might think. The Chinese government isn’t shy about putting banks that trash-talk its economy into the penalty box as far as official business is concerned. So Morgan Stanley has to be even more confident of its view than one might ordinarily expect to be willing to incur the ire of the Chinese officialdom."

I've linked to the entire piece here but was especially interested in the chart posted at the top which outlines how a Chinese slowdown will ripple out into global markets:

  • "We have found that every 1% of Chinese GDP deceleration could reduce global economic growth by 60 basis points. On a current dollar basis (i.e., not purchasing power parity, or PPP), the global economy is expected to grow about 3% in 2014 and 2015...Therefore, if the Chinese economy were to slow by 200 basis points to 5.4%, from current expectations of 7.4% for 2014,13 global economic growth would slow to 1.8%, substantially below potential of 2.8%. This could have a significant impact on global equities, as our analysis shows that the global economy needs to grow at least 2.5% for global corporate profits to grow."

Yikes indeed!