Global economy now has its own ‘Three-Body Problem’

TOKYO — Analysts at Fitch Ratings have been a busy bunch in recent months warning of debt landmines in the two biggest economies.

First, there was the rating company’s decision to downgrade the US last August, revoking Washington’s coveted AAA status. Now its move to lower its outlook on China’s credit standing is making fresh headlines.

The same day Fitch warned about Beijing’s “more uncertain economic prospects amid a transition away from property-reliant growth to what the government views as a more sustainable growth model,” the Japanese yen fell past 152 to the dollar, the lowest in 34 years. The yen’s trajectory is upending market dynamics everywhere.

Call it the global economy’s “Three-Body Problem.” The reference here is Netflix’s runaway hit alien invasion series. And as 2024 unfolds, it’s hard not to worry that the international financial system has a three-troubled-economy dilemma on its hands.

The upshot is that the months ahead could be far more chaotic for global markets that virtually anyone thought as the year began.

Arguably, China’s challenges have gotten the highest viewing ratings as its property crisis festers and deflationary pressure spooks investors. The US$7 trillion stock rout from a 2021 peak until January has simmered down. But fears that growth in Asia’s biggest economy will disappoint are influencing decisions in trading pits everywhere.

Fitch’s announcement follows a similar one in December by Moody’s Investors Service to downgrade the outlook on China’s credit rating to negative from stable. At the time, Moody’s highlighted risks related to “structurally and persistently lower medium-term economic growth” and to the ongoing turmoil in the property sector.

Now, Fitch says its move “reflects