It is hard to look at recent headlines without feeling alarmed. Markets are wobbling like jelly in a tumble-drier. China is in turmoil. Britain’s Labour party is on the brink of electing a bearded socialist as its leader.
And in the US, Republicans are captivated by Donald Trump, a man who, though adept at building casinos, knows next to nothing about government. Asked to describe his healthcare policy, he said he would replace Obamacare with “something terrific”.
Of all these horrors, it is the possibility of a hard landing in China that spooks investors the most. The world’s second-largest economy has long been its most reliable growth engine. Now it is in trouble.
Chinese officials insist that growth this year will be 7% or so. No one believes them. Some analysts think the true figure could be as low as 2% or 3%, but this is probably too pessimistic.
The Chinese government has thrown more than £100bn at the stock market in a fruitless attempt to prop it up. President Xi Jinping seems more comfortable presiding over military parades than talking about the economy – at least the goose-stepping soldiers do what they are told.
Yet although China’s problems are real – and likely to be amplified by a shrinking labour force – there is no need to panic. The stock market is not as important to China as, say, the City is to the UK. Far more household wealth is tied up in bricks and mortar. And here the news is not so bad: prices have firmed up, despite the vast numbers of unsold homes in parts of China.
India is looking chirpier than China, for now. Cheap oil has been like a big tax cut for motorists and an even bigger one for farmers, who use lots of fuel and fertiliser. India’s growth may outpace China’s this year.
But its medium-term prospects are not as good as they should be. The prime minister, Narendra Modi, who came to power vowing to be a business-friendly Mr Fixit, has disappointed. He recently gave up on a crucial land reform, which was supposed to make it easier for the government to acquire land on which to build roads, railways and airports.
Currently, this is close to impossible – squatters and red tape can delay new projects for decades. Modi’s decision to leave things as they are will mean ever more motorists remain stuck where they are, gridlocked on the overcrowded streets of Mumbai and Delhi.
Several other emerging markets are floundering. Brazil, which boomed when Chinese demand drove commodity prices skywards, has suffered as they have fallen back to earth. Dilma Rousseff, Brazil’s president, is struggling to keep the budget deficit under control.
This will be tricky: her approval rating is in single digits and the constitution makes spending cuts very hard. The country faces a deep recession and a credit downgrade.
The good news is that the US is doing well, despite Trump’s insistence that “this country is a hellhole [and] we are going down fast”. Unemployment, at less than 6%, is among the lowest in the rich world. Growth is brisk for a mature economy. The Fed will have to raise interest rates at some point, but that point keeps receding.
And the outlook for US real estate is reasonably good. Chinese investors will not suddenly pull out. If anything, the trouble at home makes them even keener to put their cash into safe overseas assets.
Also, with jobs now relatively easy to find, the army of young American adults who still live with their parents will surely move out before long. This will be good for their romantic lives – and for home prices.
Robert Guest is foreign editor of The Economist
