What’s Hard Landing?
A hard landing is a sharp economic fall after fast expansion. Aviation uses the phrase “hard landing” to describe a high-speed landing that causes stress and injury. The metaphor refers to high-flying economies experiencing an unexpected growth check, such as a monetary policy intervention to reduce inflation. A hard landing can lead to stagnation or even recession in economies.
Understanding Hard Landings
Economic policymakers prefer smooth landings over forceful landings. To accomplish a soft landing, government officials and central banks would gradually cut fiscal and monetary policies to contain price inflation without harming jobs or debt-carrying individuals and firms.
Economic dependence on fiscal stimulus or easy money makes it harder to wean off expansionary policy and increases vulnerability to heavy landings from even slight curbs. Thus, the longer a policy-induced boom lasts or the greater an easy money-fueled market bubble develops, the harder it is for policymakers to reduce expansionary policy support and arrange a smooth landing gradually.
Slowing or discontinuing expansionary macroeconomic policies can cause a stock market crash, a financial crisis, or investor confidence to collapse. The slow reaction and execution of macroeconomic policy can lead to a broad recession, making it difficult for policymakers to provide an effective defense.
Several times, the Federal Reserve raised interest rates at an unpleasant pace, slowing the economy and perhaps causing a recession. In 2007, the Fed tightened monetary policy to temper the residential real estate market, causing a harsh landing. Although the Great Recession was spectacular, the scale of the speculative bubble makes a clean landing doubtful.
Many Mention China’s Hard Landing
Many believe China is at risk of a harsh landing due to its high GDP growth rates in recent decades. Chinese cities with high property values and significant debt may decline, especially at the local government level.
In late 2015, a fast yuan depreciation and decreased trade volumes raised concerns of a Chinese hard landing, with Société Générale estimating a 30% chance. Currency markets steadied, and trade volumes were restored. In 2019, the crackdown on shadow financing sparked concerns about the impact on Chinese firms, development, and jobs. Although all the Western nations anticipating a harsh landing for China have experienced one, China has not.
