US No Longer 'Locomotive Of Global Growth,' Replaced By China: Economists

Although the United States remains one of the largest economies in the world, it is not the "locomotive of global growth" it once was, say experts.

MOSCOW, October 18 (RIA Novosti), Ekaterina Blinova - Although the United States remains one of the largest economies in the world, it is not the "locomotive of global growth" it once was, say experts.

"US markets had grown solidly throughout 2014, but when October arrived they got a pummeling. America's blue chip S&P 500 Index erased its gains for the year, as concerns over weakening growth in Europe and Asia reached a tipping point. The Dow Jones Industrial Average came close to doing the same, dropping more than 400 points, or 3pc, in a single day," the Telegraph's US Business Editor Katherine Rushton reported.

The roots of the US rout lie in the slowdown of markets in Asia and Europe, deems Michael Gapen, managing director of US economic research at Barclays.
"It is led by worries in both the US and Asia – it is strictly a non-US global story. The data out of Europe has been disappointing, and the data out of Japan and China looks shaky," he explains as cited by the Telegraph.

There are signs that weak market performance in the US may be due to weak Chinese market performance, on the back of China’s troubled real estate market. Chinese markets took a hit earlier this year when Shanghai Chaori Solar Energy Science & Technology and Zhejiang Xingrun Real Estate declared bankruptcy. In the past, emerging market woes have been good for the United States, which benefited from a resulting “flight to quality”. However, some investment analysts are convinced that this may be becoming a thing of the past.

Ruchir Sharma, the head of Emerging Markets and Global Macro at Morgan Stanley Investment Management, emphasizes that China has replaced the US, the established world leader "as the main engine of the global economy."

"When the US sneezes, the world catches a cold, an old saying goes. But now it's China's health that matters most," the expert states in his article "Global Markets Catch the Chinese Flu," published in the Wall Street Journal.

Since China's economic growth slowed down, companies which are most dependent on sales in China have been struck heavily. "Every one-point slowdown in China’s growth now takes about half a point off global growth, according to a recent J.P. Morgan analysis," Ruchir Sharma underscores.

Experts point to the fact that there are also other reasons for the global slow-down, particularly, geopolitical concerns, such as ongoing Occupy Central protests in Hong Kong, continuing unrest in the Middle East, the Ukrainian turmoil and the rapid spread of the deadly Ebola virus.

However, Michael Gapen believes that the US may still "benefit" from some of the global economy’s jitters.

"From the point of view of the US, some of these shocks could help boost growth. A sharp decline in oil prices means a sharp decline in retail gasoline prices – it translates into an energy price windfall - and that is something that supports consumption in the US," he says, as quoted by the Telegraph.

Although the US economy looks relatively healthy, it "does not exist in isolation," notes Katherine Rushton. That means the US market will be seriously impacted by rises and falls of the Asian markets. Since the "center of the growth has shifted east," as Ruchir Sharma stated, the next boom or recession will likely to be triggered by Asia's giant – China.

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