A previous post explored the potential implications for U.S. growth and inflation of a manufacturing-led boom in China. This post considers spillovers to the U.S. from a downside scenario, one in which China’s ongoing property sector slump takes another leg down and precipitates an economic hard landing and financial crisis.
China’s Policy Space Is Becoming More Constrained
In this scenario, Chinese authorities’ policy space proves insufficient to forestall a deep and protracted downturn. Our view is that this scenario is less likely to materialize than the upside scenario described in our previous post. We share the consensus view that the Chinese authorities retain considerable scope for managing the economy and associated finan