US and China Lead the Slowdown

| Multi Asset

US and China Lead the Slowdown

Source: Bloomberg, RavenPack, Unigestion, as of 14.09.2021

Our proprietary Growth Nowcasters started decelerating in July, indicating that the recovery had peaked in June. The deceleration gained traction over the summer as a natural mean reversion from extreme levels; not so concerning per se, but the continuation of the downward trend caught investors’ attention in September, including ours. More importantly, the two major economies driving the trend are China and the US, which is far more worrying. The deceleration spiral sequence is following the same pattern as the post-Covid recovery: China, followed by the US, followed by Europe. Our Chinese Nowcaster has now turned slightly negative, indicating below-potential growth for the first time since January 2020. It took just three months for China to turn from an economy running above potential to the current level, so the next quarter will be critical to assess whether Chinese growth will stabilise around its long-term potential or if it dips further towards recessionary levels. The same phenomenon has been observed in the US, despite starting from a higher base. The pace of the slowdown has been meaningful: for the past two months, on average, 67% of growth-related data has deteriorated versus previous readings. The level of the US Nowcaster has dropped to almost zero, indicating that the US economy is now growing at its long-term potential. In Europe, it looks like growth peaked recently and will likely mean revert as well.

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