Reuters/CHINA STRINGER NETWORK
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Global markets are jittery in recent days as fears about growth in China take hold.
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"The larger the stimulus used by China to offset the trade war impact, the bigger will its deficit likely be," Tao Wang, UBS's chief China economist, said in a report on Tuesday
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Markets are also worried about the ongoing Italian debt crisis, and the rising price of oil.
Trouble is brewing in global markets. Look no further than China.
China's current account balance is down significantly from last year's 1.3% and will likely turn into a small deficit in 2019. If so that would be the first time in 24 years.
"The larger the stimulus used by China to offset the trade war impact, the bigger will its deficit likely be," UBS's Tao Wang, chief China economist, said in a report on Tuesday.
That may hurt confidence and hasten outflows, putting pressure on the nation's currency.
"Although CNY depreciation can partially offset trade war impact, a large depreciation will likely hurt domestic confidence, trigger panic outflows and risk financial stability," UBS said.
In the US stock market, Morgan Stanley says a bear market correction could arrive in 2019, sooner than markets currently expect.
After years of monetary stimulus and a short-term boost from the Trump administration’s tax cuts, more rate rises and lower bond prices will ultimately bring the US economy to a halt. But "before this occurs, it appears we will get a final spike higher," in yields, Morgan Stanley says.
The IMF lowered its outlook for the global economy, saying it will grow 3.7% this year, the same as in 2017 but down from the 3.9% it was forecasting for 2018 in July.
China has accepted its fate: Beijing is coming to terms with a lower rate of growth as the trade war with the US escalates, Barclay's chief China economist, Jian Chang, told CNBC. Tit-for-tat tariffs and reduction in Chinese export growth might trim between 0.5% to 1% off the Chinese economy, she said.
China's issues are leading major banks to question the strength of its stock market, with JPMorgan cutting its outlook on the country's equities from overweight to neutral last week.
The bank thinks the trade war brewing between Beijing and the Trump administration will have a negative impact on China's economy and, as a result, hit stocks.
"Total impact on China's GDP growth is 1.0%, if China does not take countermeasures," a team of JPMorgan analysts wrote.