Brighter
Seems the fear of the so-called "hard-landing" in China has been overblown.
Through these past spring and summer months, a concern often expressed was that, as the Chinese economy made the transition from the robust state investment/export-led model to one based more on domestic demand, overall growth would not only slow, but slow precipitously. In turn, this would exacerbate the fragility of the economic recovery elsewhere in the world, especially in Europe, but also in the resource-based economies like Australia, Canada and Brazil, more or less reliant on Chinese demand for their natural resources. And with US economic growth still too low to make a significant impact on American unemployment, the risk was that the tentative world recovery from the Great Recession of this century could stall, even with the still-massive fiscal and monetary stimulus in place.
The US equity markets, however, would have none of this pessimistic scenario, and instead have continued their upward climb, to all-time highs. As it turns out, they may well have, once again, anticipated correctly. Chinese growth has no doubt slowed, from the double-digit rates of past decades, but is still likely to come in as high as 8% by the end of this year and into 2014. Excessive slowing appears to have been avoided - Stephen Roach, former Morgan Stanley Asia Chairman, commented recently that "by my count, this is the fifth hard-landing in ten years that has turned out to be a soft landing". Such a view is supported by very recent data - growth is more broadly-based, with not only strong fixed asset investment and industrial production, but also strengthening retail sales and personal income.
Elsewhere, Japan, under Prime Minister Shinzo Abe, is better positioned for growth now than it has been for years. Europe, it appears, is at least not sinking any further (although the calm before this month's German elections may prove deceiving - Greece will need more aid, and Italy's government coalition and economy are, as usual, fragile). American growth remains tepid, and there are fiscal, monetary and public-sector pension uncertainties. But many of the imbalances in the economy have been mitigated, with the corporate sector (including finance, housing and auto) stronger and more resilient, and globally competitive. Under the new Basel capital standards, American banks are holding more, and higher quality, capital; American property prices have adjusted and households have cut their debts; even the federal government budget deficit is falling, rapidly, as growth resumes.
No doubt risks are everywhere; sustainable recovery from the recession is still a work-in-progress. But with America, China and perhaps even Japan all pulling forward simultaneously, and with the fundamental overhaul of financial regulation in recent years, it's safe to say at the very least that there are no Lehman-sized systemic disasters looming.