LONDON: Ten years
after China helped stave off the threat of a global depression with a huge
stimulus plan, investors are looking once again towards Beijing as the world
economy heads for a slowdown, or worse, in 2019. Booming China has accounted
for about a third of the growth in the global economy in recent years. So
recent signs that it is losing momentum is unsettling when the US boom,
turbo-charged by President Donald Trump's tax cuts of 2017, seems to have
peaked and Europe's heavyweights are stalling.

China's slowdown
is already being felt around the world, from Apple's profit warning due to
weaker sales of its iPhones to carmaker Jaguar Land Rover laying off workers,
after a 22 percent fall in sales in the country in 2018. Policy sources told
Reuters in Beijing on Friday that the government is planning a lower economic
growth target of 6-6.5 percent for 2019 after an expected 6.6 percent in 2018,
which would be the slowest expansion since 1990.

In the first few
days of 2019, China raised infrastructure spending with a $34 billion railway
investment and its central bank loosened the screws on banks to encourage them
lend more, its fifth such move in a year. "China, that's what worries me
most," Joachim Fels, managing director and global economic advisor at bond
giant Pacific Investment Management Company, said as he surveyed the outlook
for the world economy in 2019.

As well as
cutting China's appetite for imports, a deeper slowdown could weaken its yuan
currency and fan the flames of the trade war between Beijing and Washington.
However, Fels said his recession models for 2019 were flashing only orange
warnings-not red-in part because the US Federal Reserve was likely to pause its
run of interest rate hikes after one or two more increases. China is expected
to do more to act to help its economy too, although officials in Beijing say
they do not plan a stimulus of the magnitude of the nearly $600 billion package
unleashed in 2008, shortly after the collapse of Lehman Brothers.

"I find it
hard to look at it historically and bet against the Chinese authorities
managing to stabilize their economy," Jim McCormick, global head of desk
strategy for RBS division NatWest Markets, said. "When China wants to
stabilize its economy, they tend to be successful." In November, the
Organization for Economic Co-operation and Development trimmed its forecasts
for Chinese growth to 6.3 percent in 2019 followed by 6.0 percent in 2020.

Since then, the
impact of US-China trade tensions have become more apparent, OECD senior
economist Margit Molnar said, suggesting the forecasts could be lowered again.
Higher borrowing by local governments in China suggested a pick-up in
infrastructure spending was coming, she said, potentially helping to offset
signs of fragile confidence among Chinese consumers.

"The major
issue is to guarantee a gradual slowing," Molnar said.

Investors breathe
easier

For the time
being, the concerns of investors in late 2018 about the global economy have
eased, leading to a tentative recovery in battered stock markets. A round of
talks between US and Chinese trade officials in Beijing did not end in
acrimony. And in Europe, a slowdown is probably in part due to one-off factors
such as new pollution rules for carmakers and the impact of the 'gilets jaunes'
protests in France which has been felt in the supply chains that stretch across
the border into Germany.

Steven Bell,
chief economist with BMO Global Asset Management, said surveys of purchasing
managers in the private sector around the world suggested a broad pick-up in
industrial production was not far off. And for many consumers in rich
economies, low inflation and gradually rising wages will help their spending
power.

But even if the world
economy avoids a painful slowdown this year, it faces daunting fundamental
challenges. Many countries seem stuck in a rut of slow productivity growth
which puts a brake on earnings and has propelled the rise of populist politics,
from Trump to the protests in France.

In Britain, the
radical left-wing leadership of Britain's opposition Labor Party is worrying
investors after Prime Minister Theresa May split her Conservative Party with
her plan to ease Britain out of the European Union at the end of March. Gabriel
Sterne, head of global macro research at Oxford Economics, said the pressure on
politicians to heed the frustration of voters after years of austerity could
help end an overly tight squeeze on public spending by some governments.

"By contrast,
a worst-case scenario is one in which frustrated politicians launch hasty
attacks or takeovers of key institutions, compromising central bank
independence and launching unsustainable fiscal expansions," he said.
"Afflicted advanced-economy assets could even behave as if in an emerging
market crisis." - Reuters