When North America was coming out of its financial crisis, we were fortunate that the emerging markets—especially the growth in the Chinese economy and Indian economy—helped provide some of the growth that the world so desperately needed at the time.
A few short years later, with Europe in a recession and the U.S. economy not growing very much at all, the dependence on Asia has changed. The fact is that the Chinese economy and the economy of India are slowing measurably.
In India, manufacturing production in March 2012 fell 4.4% from a year earlier. This slowdown is blamed squarely on the recession in Europe.
What is more alarming is that the “investment indicator of capital goods output,” which measures how future investment in manufacturing is looking, fell 21% in India from last year!
If this is not an economic slowdown, I don’t know what is.
The central bank of India had forecast 7.6% growth for the coming year, but that will have to be taken down significantly in light of these numbers. The central bank of India is looking for ways to stop the economic slowdown, including lowering interest rates.
While not contracting, the Chinese economy is slowing considerably. In April, China’s industrial output slowed to its lowest level since 2009!
In April, the employment level in the manufacturing sector, which is so important to the Chinese economy, fell at the fastest rate since 2009!
The month-over-month increase in industrial output between March and April this year in the Chinese economy was 0.35%, which was the lowest growth rate ever recorded since the index was created decades ago!
In response to the economic slowdown, the People’s Bank of China reduced its banks’ reserve requirements (equivalent to cutting interest rates here in the U.S.) by one-half-of-a-percent. The People’s Bank of China sees further downside risks to the Chinese economy, which means it could cut rates further a month from now.
There is no doubt that the Chinese economy is feeling the effects of the recession in Europe in terms of its exports (as is evident by the industrial and manufacturing numbers). Retail sales in China grew at a slower pace than expected in April, further adding to the evidence of an economic slowdown in the Chinese economy.
While it helped tremendously to have the Chinese economy and Indian economy as great sources of growth when the U.S. financial crisis hit, they will not be there to support the global economy on the next leg of the downturn. (Also see: World Economic Growth Moving From Slowdown to Contraction.)
Where the Market Stands; Where it’s Headed:
Update and reiteration from yesterday…
Last fall, I circulated a report that stated the stock market would start to crash in the U.S. on or about April 13, 2012. It was entitled “Next Market Crash Starts April 13, 2012.”
I was exactly two week early. From the end of April to yesterday, the Dow Jones Industrial Average has collapsed 896 points, or about seven percent.
But we should not be afraid. Money printing will save the day again.
Wednesday of this week, we got news that several members of the Federal Open Market Committee (the Federal Reserve) said that more monetary easing (money printing) may be required. As I have been predicting for months, as soon as the stock market started to pull back, QE3 would be on to the table again.
What a concept. Stock market and economy start to go down; we just print more money to get them both moving again. How long can this process go on for? How long can the Fed fight the natural forces of a secular bull market?
The bear market rally in stocks that started in March of 2009 is getting close to the end of its cycle. I have been warning my readers that the limited upside for the market may not be worth the risk.
What He Said:
The year “2000 was a turning point of consumer confidence in high tech stocks. 2006 will be remembered as the turning point of consumer confidence in the housing market. That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory and eventually lower prices for homes. But this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in PROFIT CONFIDENTIAL, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.