China will avoid hard landing, won't cause recession: BofA

Jan 27, 2016 (LBO) – Whatever does cause the next global recession, it probably won’t be China, according to Bank of America Merrill Lynch.

Their analysts believe the world’s second-largest economy will avoid a hard landing and risks from financial market turbulence can be contained by the Chinese government, according to a Bloomberg report.

“We don’t view the slowing in Chinese growth as having sizable spillovers into developed markets generally, but certain economies will be harder hit than others,” Michael Hanson, senior global and U.S. economist said.

Although China’s slowdown will affect investor confidence, it won’t unduly affect the global economy based on an analysis of trade, portfolio and commodity channels, he said.

Billionaire investor George Soros recently predicted China’s economy was headed for a hard landing which will worsen global deflationary pressures.

Willem Buiter, chief economist at Citigroup Inc., said his base case is for the world to suffer recession-like growth of less than 2 percent this year.

However, contrary opinions have been expressed. Virgin Group Founder Sir Richard Branson believes markets are overreacting.

“I think the markets are (as they often do) overreacting. I think they’re forgetting the reason that oil is priced at such a low level is excess supply over demand — and that’s a good thing,” he said during an interview in Davos last week.

“The only people who are going to suffer from it are obviously oil producing nations and oil companies,” he said. Consumer, airlines and most businesses will benefit from 25 dollars per barrel oil, he added.

According to Branson, oil prices could stay low for quite a long time.

“I personally think that oil is to stay low for some years to come and then you’ve got the clean energy revolution that’s been agreed [upon] in Paris coming along. You could see a situation where oil never really goes above 40 dollars for many, many, many, years to come if ever.”

Economist Joseph Stiglitz in Colombo this month highlighted why the Indian economy was a bright spot in South Asia, again bucking the global trend.