Summers Sees ‘Lot of Grounds for Concern’ About China’s Economy

(Bloomberg) -- China is confronting as tough a time for its economy as it’s had in at least the last decade, former Treasury Secretary Lawrence Summers said.

“You have pretty clear evidence that things have slowed down a fair amount in China, regardless of what the statistics show,’’ he told Bloomberg Television on Wednesday. “There are a lot of grounds for concern.’’

While the Chinese authorities have many policy tools they can employ to counter the slowdown, it’s not certain that they’ll succeed in getting growth back up, he said.

“You’re probably seeing as difficult a moment for the Chinese economy as any they’ve had in the last 10 or 20 years,’’ said Summers, who is now a professor at Harvard University.

China’s manufacturing purchasing managers index dropped to 49.4 in December, the weakest since early 2016 and below the 50 level that denotes contraction. Measures of new orders and new export orders slipped -- a bearish signal for future demand -- while readings for input and output prices weakened.

Summers repeated his view that the U.S. faces a “significant risk” of a recession over the next two years. In a tweet on Dec. 26, he put the odds of a U.S. downturn by the end of 2020 at 60 percent.

“I don’t think there are grounds” for further interest rate increases by the Federal Reserve anytime soon, said Summers, who also served as chief economic adviser to President Barack Obama.

He said the Fed should keep shrinking its balance sheet, which it’s currently doing by as much as $50 billion a month, but be open to changing course if needed.

“If I was advising the Fed, I would not change the balance sheet policy but I wouldn’t signal either that the balance sheet policy is inviolate,’’ Summers said.

Speaking to economists in Atlanta on Jan. 4, Fed Chairman Jerome Powell raised the possibility of a pause in the Fed’s interest-rate hiking campaign and a shift in balance-sheet policy in response to the downside risks that investors perceive to the economy.

--With assistance from David Westin.

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor, Ben Holland

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