The global economy is coming under fire.
While the Fed is raising interest rates, there are signs the global economy is leaking like a bucket obliterated by a BB gun. This is the challenge when looking at only one or two indicators to determine how things are going.
We recently covered how the increase in inventory is a sign that demand is waning. This is putting more pressure on warehouse space as the goods start to back up. Of course, this filters through to the world's manufacturing center, China.
The situation might not be so bad if that nation weren't under economic pressure to begin with. We know the lockdowns that are taking place result in slower growth. The numbers coming out of China are as bad as early 2020.
This might be the tip of the iceberg.
Banking System
People like to make these situations neat and tidy. The reality is that economic matters can rarely attributed to one thing. Also, if there is a main cause, it is usually something different than what the media will point to.
Either way, whenever a banking system is under pressure, it does not bode well for that nation.
We are now seeing signs that some Chinese banks might be in trouble. Insolvency is being questioned. Some banks in China are stopping depositors from getting their money. This is a powerful sign that the banking system has cracks in it.
The banks, naturally, claim they were doing things such as system upgrades. However, the situation is worsening as the days pass.
Overall, this is not a major issue to the Chinese banking system. Yet this is how things start. It rarely begins as nuclear. Instead, it is small and then keeps expanding. Remember, originally it was only Evergrande having issue with some of its debt. A few months later, everyone knew the debt situation affected most of the developers in the country. This is putting the entire real estate market at risk.
If this is followed up by a banking crisis, things could get very ugly within China itself.
Spreading Throughout The World
Unfortunately, nothing like this can be contained. There is no way to separate China from the global economy. In fact, this country was responsible for 1/3 the global growth over the past 2 decades. Removing this from the equation will put an already weak economy in major jeopardy.
The EU is already suffering in a major way. We might see that area end up going negative this year. At the same time, the United States came in with an awful 1st quarter GDP number, something that is not likely to improve if inventories keep building. Keep in mind the US economy is 70% consumption.
Without the growth, we obviously face contraction. This is a problem since the main drivers look to be slowly. Going back to China, even the central bank cutting rates (in contrast to the Fed's tightening) isn't likely to kickstart the property sector. It seems like the policy to reign that in is working. Unfortunately, like is the case with the Fed, creating a soft landing is almost impossible.
We know how a financial crisis can spread. If we are seeing a banking issue in China starting, this could get out of hand very quickly. China is, after all, the second largest economy as well as the leading exporter.
This is a situation to watch very closely. We are seeing a lot of signs that could be telling us that China is about to take down the global economy.
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