Harvard Economist Kenneth Rogoff Predicts Slower Global Growth Amid China's Slowdown

Harvard economist Kenneth Rogoff has shared his insights on the global economy, highlighting concerns about slower global growth resulting from China's economic slowdown. He also praised Chile's economic management and anticipated interest rate cuts by the US Federal Reserve.

Why this matters: The global economy is closely tied to the performance of major economies like China and the US, making predictions of slower growth and potential inflation a concern for investors and policymakers worldwide. If Rogoff's predictions come to pass, it could lead to a ripple effect of economic downturns and instability across the globe.

Rogoff commended Chile's business, economy, noting its stability and growth despite global economic uncertainties. He emphasized Chile's resilience and adaptability in coping with the challenges posed by the COVID-19 pandemic.

Rogoff warned that the global economy is likely to experience slower trends following China's economic slowdown. He pointed to recent indicators, such as the Caixin services purchasing managers index (PMI) in June, which hit a 14-month low of 50.3, indicating evidence of China's decelerating growth.

In response to the global slowdown, Rogoff expects the US Federal Reserve to cut interest rates. He believes that this move will help stimulate economic growth and mitigate the impact of the slowdown. However, he cautioned that such measures could also lead to potential inflation.

Rogoff also highlighted the risks of escalating trade tensions between the US and China, which could further exacerbate the economic situation. He stressed the importance of cooperation between nations to overcome these challenges effectively.

The broader economic context shows mixed signals from the US economy, with conflicting data on economic and consumer spending. The S&P 500 has risen by 11.3% year-to-date, while key tech stocks have outperformed, rising by 24.9%. However, GDP growth estimates have been revised downward, indicating potential weaknesses.

Financial conditions in the US have eased, with Treasury yields reflecting softer economic data and friendlier inflation readings. Markets have priced in a 60% chance of a Federal Reserve easing in September, with expectations of further rate cuts in 2024.

The labor market also shows signs of softening, with initial filings for unemployment benefits trending upward. Despite this, the absolute level of initial jobless claims remains relatively stuck historically.

Rogoff's insights highlight the importance of effective economic management and international cooperation in addressing the challenges posed by a slowing global economy. The potential for inflation and trade tensions between major economies remains a significant concern.

Key Takeaways

• Harvard economist Kenneth Rogoff predicts slower global growth due to China's economic slowdown.
• Rogoff praises Chile's economic management for its stability and growth amidst global uncertainties.
• He expects the US Federal Reserve to cut interest rates to stimulate economic growth.
• Rogoff warns of potential inflation and escalating trade tensions between the US and China.
• Effective economic management and international cooperation are crucial to address global economic challenges.