WASHINGTON, D.C.: A roller-coaster ride on global markets, which saw some bourses record their largest one-week losses since 2008 as they took fright at a Chinese sell-off,
have raised fresh worries over the strength of the global economy.
And while analysts said fears of a repeat of the financial crises of 1997 or 2008 were largely unfounded–mainly because of reforms undertaken since–they warned that continued turbulence emerging from China would take a toll on global economic growth, especially in emerging economies.
An 8.5 percent plunge on Shanghai’s benchmark index on Monday triggered sharp declines across the main US and European exchanges, with drops that wiped out any profits earned this year.
The carnage was even worse in emerging economies, and while non-China stock markets recovered somewhat on Tuesday, comparisons have nevertheless been made to the 1997 financial crisis, which left East and Southeast Asian economies in tatters and some seeking bailouts from the International Monetary Fund.
At the time, China was a rock of stability. This time, it is the source of the turmoil.
Beijing’s failed efforts to calm its own capital markets and stem the domestic economic slowdown were compounded by the unexpected devaluation of the yuan two weeks ago.
Fears that the devaluation was a sign that the country’s economy was in even worse shape than feared–though China is one of the fastest-growing economies in the world, gross domestic product expansion has slowed to around seven percent–sparked a sell-off. Most emerging economies followed, effectively triggering a bout of competitive devaluations.
Worries that leaders in Beijing have not yet got a handle on the country’s economic problems are only growing.
“What we are facing now is the increasing uncertainty over the ability of the Chinese authorities to manage the transition in China,” Peterson Institute for International Economics economist Angel Ubide told Agence France-Presse.
The failed market interventions, he said, have only increased questions “about whether the Chinese authorities are really on top of things.”
Already amid worries about China and other emerging economies, the International Monetary Fund in July cut its 2015 growth forecast for the year to 3.3 percent from 3.5 percent predicted just three months earlier.
Charles Collyns, chief economist at the International Institute of Finance in Washington, noted that “there are enduring factors that do imply a more enduring impact on the global economy.”