
Hard Landing
A hard landing refers to a marked economic slowdown or downturn following a period of rapid growth. A hard landing is often seen as a result of tightening economic policies meant to cool down an economy, but no central bank or government sets out to orchestrate a hard landing for their people. The term hard landing has often been applied to China, which has enjoyed decades of preternaturally high gross domestic product (GDP) growth rates that — to some observers — have set it up for a hard landing. In 2019, the talk of a Chinese hard landing resurfaced with the crackdown on shadow finance and speculation on what the loss of that credit source will do to Chinese businesses, growth, and jobs. A hard landing refers to a marked economic slowdown or downturn following a period of rapid growth.
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What Is a Hard Landing?
A hard landing refers to a marked economic slowdown or downturn following a period of rapid growth. The term "hard landing" comes from aviation, where it refers to the kind of high-speed landing that — while not an actual crash — is a source of stress as well as potential damage and injury. The metaphor is used for high-flying economies that run into a sudden, sharp check on their growth, such as a monetary policy intervention meant to curb inflation. Economies that experience a hard landing often slip into a stagnant period or even recession.
Understanding Hard Landings
A hard landing is often seen as a result of tightening economic policies meant to cool down an economy, but no central bank or government sets out to orchestrate a hard landing for their people. Most officials want to see a soft landing, where the overheating economy is slowly cooled off without sacrificing jobs or unnecessarily inflicting economic pain on people and corporations carrying debt. Unfortunately, the more heated an economy becomes through stimulus or other economic interference, the more vulnerable it becomes to a hard landing due to even minor checks on growth.
The Federal Reserve, for example, has hiked interest rates at several points in its history at a pace that the market found unpalatable, leading the economy to slow and/or enter a period of recession. Most recently, there was a hard landing in 2007 resulting from the Fed tightening monetary policy to cool the residential real estate market. The fallout was spectacular, with a Great Recession rather than just a recession, but it is difficult to imagine how a soft landing could take place when the speculative bubble had grown so large.
China's Oft Mentioned Hard Landing
The term hard landing has often been applied to China, which has enjoyed decades of preternaturally high gross domestic product (GDP) growth rates that — to some observers — have set it up for a hard landing. High levels of debt, particularly at the local government level, are often pointed to as a potential catalyst for a downturn, as are high property prices in many Chinese cities.
In late 2015, following a rapid devaluation of the yuan and softening trade volumes, many observers feared a Chinese hard landing: Société Générale put the odds of at 30%. However, trade volumes recovered and currency markets stabilized. In 2019, the talk of a Chinese hard landing resurfaced with the crackdown on shadow finance and speculation on what the loss of that credit source will do to Chinese businesses, growth, and jobs. Of course, it is worth noting that China has yet to experience a hard landing, while all the western powers predicting it on their behalf have been through a few.
Related terms:
Easy Money
Easy money is when the Fed allows cash to build up within the banking system in order to lower interest rates and boost lending activity. read more
Economic Stimulus
Economic stimulus refers to attempts by governments or government agencies to financially kickstart growth during a difficult economic period. read more
Economics : Overview, Types, & Indicators
Economics is a branch of social science focused on the production, distribution, and consumption of goods and services. read more
Gross Domestic Product (GDP)
Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. read more
The Great Recession
The Great Recession was a sharp decline in economic activity during the late 2000s and was the largest economic downturn since the Great Depression. read more
Inflation
Inflation is a decrease in the purchasing power of money, reflected in a general increase in the prices of goods and services in an economy. read more
Monetary Policy
Monetary policy is a set of actions available to a nation's central bank to achieve sustainable economic growth by adjusting the money supply. read more
Recession
A recession is a significant decline in activity across the economy lasting longer than a few months. read more
Shadow Banking System
A shadow banking system refers to the unregulated financial intermediaries that facilitate the creation of credit across the global financial system. read more
Sluggish Economy
A sluggish economy is an economy that is experiencing slow or no growth. The term can refer to the economy as a whole or a component of it. read more