While China has taken policy steps to limit the extent of the slowdown, there is an evident tension in policy between reform and stimulus, and the effect of the stimulus may already be waning. Vulnerabilities – such as excess capacity, elevated corporate debt, and risks in the shadow banking sector – appear to be building, and could pose continued risks over the medium term.
The fragility of the global economic environment is unlikely to resolve any time soon. Growth in the advanced economies remains dependent on extraordinary unconventional monetary policy accommodation, while conventional policy continues to be constrained by the zero lower bound.