Tim Condon, Chief Economist at ING, suggests that China’s devaluation on 811 persistently raised financial market volatility and depressed global trade growth.
“The G20 communique said “the magnitude of recent market volatility has not reflected the underlying fundamentals of the global economy.” The post-811 break in the VIX suggests otherwise. We expect the elevated volatility to persist, though we expect evidence that policy stimulus is reducing the likelihood of a hard landing in China to shift the source of volatility spikes from China to commodity exporting developing countries.
The Netherlands Bureau of Economic Policy Analysis’s released December data showing that global trade volume growth slowed to 2.5% in 2015 from 3.2% in 2014. The post- GFC growth slowdown has become a cottage industry with economists trying to understand whether it’s cyclical or structural. We’re in the structural camp and we believe China’s 811 devaluation was another knock to growth. After averaging 3.0% in the first seven months of the year, only slightly below 2014’s 3.2%, growth slowed to 1.9% in the final five months.
We think China’s 811 devaluation persistently raised financial market volatility and depressed global trade growth.”
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