It looks like the economic worm is finally turning for Europe, while China’s economy is facing increasing headwinds and might even be heading for a less than soft landing. They say what goes around, comes around, and that seems to hold true for both colds and economic cycles.
According to recent economic data from Societe Generale, European mainstays Germany and the UK have made significant progress in deleveraging corporate balance sheets and are poised for significant economic growth. Things are not looking so rosy for China, however, according to a Cross Asset Research report published today. That report highlights the significant drop in the HSBC/Markit manufacturing purchasing managers index in January as further evidence of an economic slowdown in China.
Germany and the UK to lead Europe forward
The Cross Asset report focuses on deleveraging as the key factor underpinning an economic recovery after a bubble-induced recessionary cycle. The analysts argue that businesses in both Germany and the UK have bitten the bullet over the last few years, and develeraged their balance sheets to the point that an economic recovery can proceed apace.
The report also points to a divergence among European nations, in that Germany and the UK have reduced private consumer debt, while the rest of the Euro area has barely begun the process. “According to our estimates, household debt-to-GDP ratios in the UK, the US and Germany have plunged by 15 points of GDP on average since 2007.”