Because the economic fate of China and the USA interests (and alarms) the world

Will the great powers of the world, the USA and China, drag the global economy towards the abyss? The question has become crucial in this 2023 full of pitfalls and uncertainties about global growth.
Precisely the hesitations of the Chinese GDP, grappling with a slow recovery from Covid and a large-scale real estate crisis, and the oscillations in the USA, where the resilient economy clashes with rallying Treasury yields, high interest rates, tensions skyrocketing geopolitics, are already questioning what will really happen in 2024.
The world economy, pressured by constantly changing raw material prices, two dramatic wars underway, a dangerous return to protectionism, the US-China commercial rivalry looks to the two major economic powers in the world, hoping for signs of optimism.
What to expect according to experts and what messages should investors take? How resilient is the US economy? To understand where the United States is headed, analysts rely first on the numbers.
Retail sales beat expectations in September, triggering a wave of upward revisions to GDP forecasts.
The job market also continues to overheat.
The Atlanta Fed's GDP Nowcast model forecasts real annual growth of 5.4% in the third quarter, indicating annualized nominal growth above 8%.
This, despite warning signs arising from rising public and private debt that must be covered by record financing costs.
The sharp rise in US bond yields and the Fed's continued aggressive policy obviously represent obstacles that still need to be overcome.
The longer we continue along this line, the more the difficulties multiply, growth may be weakened and a grim scenario is likely to materialize.
However, the worst may be over, especially for investors.
Chris Iggo, chief investment officer for core investments at AXA Investment Managers, reflected the consensus when he wrote on October 13: “Allow me to be brave.
Next year will be the year of bonds." read also Among the problems of the USA there are deficit and debt.
Is the power faltering? After three complex years, he and others may be right.
But no US recession or significant slowdown, and Chinese growth of around 5%, are definitely not the prevailing forecast for 2024 right now, and that's not what financial markets are pricing in.
As long as the US economic recession is delayed, the bond market recovery will be put on hold.
Yields at 5% and above along the curve may be attractive in their own right and relative to stocks, but are less attractive if the economy does not recover.
Likewise, U.S.
stocks look expensive if high yields begin to stifle the economy.
If growth holds, however, these calculations change.
The U.S.
economy has defied expectations this year, forging ahead despite 525 basis points of rate hikes in just 16 months.
The lagged impact of that tightening has yet to be fully felt, fueling debate about the underlying strength of the economy.
Where China Goes Next Official data from Beijing showed China's economy grew at an annual rate of 4.9% in the third quarter, much stronger than the consensus estimate of 4.4%.
There are reasons to be skeptical of China's data.
As Société Générale's Albert Edwards points out, once the quarterly deflator was taken into account, nominal GDP growth in the third quarter was actually only 3.5%.
However, several economists immediately raised their recovery outlook for 2023 above the 5.0% target.
The acceleration of momentum heading into next year will also cast doubt on the World Bank and International Monetary Fund's recent downwardly revised 2024 forecasts of 4.4% and 4.2%, respectively.
Investors' overall perception of the global economy remains pessimistic.
Bank of America's latest survey of fund managers showed that while pessimism eased slightly in October, the outlook has rarely been bleaker over the past 30 years.
China's economic challenges are enormous: deflation, the collapse of the real estate sector and high youth unemployment, to name just three, as recalled by Jamie McGeever on Reuters.
However, GDP data suggests that the post-Covid recovery may finally have begun, and Citi's China Economic Surprises Index is now positive for the first time since May.
do you also read China? Hedge funds are looking elsewhere That doesn't mean Chinese assets are suddenly more attractive than they were a week ago.
But investors will look at them differently if the economy grows at a decent pace.
Chinese stocks are trading at less than 10 times trailing 12-month earnings, near their lowest levels in a decade.
So much uncertainty dominates assessments of the great powers.
Beyond the macro data, analysts remain perplexed about the evolution of the US-China trade war with tariffs and restrictions; on a potential escalation on Taiwan; on the Russia-China axis; on the internal political difficulties in the USA facing presidential elections in 2024; on the default of Chinese real estate giants.
These factors can still trigger global economic shocks.