It is quite possible to get a milder global recession this time based on what is happening in China just because the Chinese economy has become so large and significant in the world today, says Ruchir Sharma of Morgan Stanley Investment Management.
Following are some of his view points
On China debt fear:
What's been happening in China has really been taking place over the last few years which has been a massive build up in debt. In fact there is no other developing country in history that has taken on debt as rapidly as China has done since 2008 global financial crisis. I think that is what is happening now, it is paying a price for this massive accumulation in debt. Now when exactly this will lead to a meltdown very hard to call. But this the big risk that the global economy faces currently.
First of, the 2008 experience was extremely unique as far as global recession goes. There have been five global recessions over the last 40 years and 2008 was very extreme version of that. That is very off the table and that is not what am expecting but it is quite possible to get a milder global recession this time based on what is happening in China just because the Chinese economy has become so large and significant in the world today. All the global recessions in the past were caused by the US, but now China has become the largest contributor to the global growth over the last decade.
China’s impact on US:
I don't think the US economy needs to fear an outright recession but I think in the US what we are looking for is that in 2016, we started off with most growth forecast of around 2.5% growth in 2016, I suspect that those need to come down by possibly a percentage point and we could grow in 2016 by 1.5% due to the weakness in global demand which hurts US exports, and also hurts the profits of US companies which are increasingly exposed to foreign sales.