China's Economy Will Cost Global GDP 3%

PHOENIX, AZ—At the Lodging Conference in Phoenix, Bernard Baumohl, the chief economist at the Economic Outlook Group, gave an economic update that got right to the point, immediately addressing the most talked about issue in the global economy: China.

“Are we going to see a drag in global economic growth and will it affect the US economy,” he asked. The answer to the former, “Yes, how could it not,” he said, noting that China contributed 25% to global GDP growth last year. He expects China's slowdown to shave 3% from the global GDP. However, he said, this would not affect the US economy, which is still poised for 2.5% economic growth over the next two years. While that isn't huge growth prospects, he said, “The US is the bright spot in the global economy. We don't see typical stress points that foreshadow a recession.” We have several good years ahead of us.”

China's economy is at its peak, according to Baumohl, who says the hybrid socialist and capitalist economy has reached its maximum potential. While some members of the economy say that growth equals stability, others say that the country must move forward with reforms to move from a manufacturing economy to a consumer economy, which would involve a rough transitionary period with shuttering companies and high unemployment. Baumohl expects the performers to prevail, but says that it may lead to some “social unrest.”

His outlook went on to cover the recent “dismal” jobs report. He said that it is important to take into consideration that some companies are hiring more than ever before and that the unemployment rate is low. Additionally, we are seeing high car sales and rising home sales—up 27%—which shows that consumers are active. “Home demand is the strongest it has been in a decade,” he said.

The Fed's recent decision not to raise rates also wasn't a concern. Calling it the “longest drum roll” in history, Baumohl thinks the Fed will raise rates 25 basis points in December and then go into hiding for the 2016 presidential election.   

He closed noting the global economic status of select countries. US and India are the economic growth leaders; China, EU and Southeast Asia are experiencing moderate growth; and Russia, Brazil, Japan and Australia are in or on the brink of recessions.