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Faber warns of global gloom as China’s economy sputters

A notable investor is warning that the Chinese economy might not just be slowing down, it could even be contracting.

Marc Faber, the editor and publisher of the Gloom, Boom & Doom Report, says he believes the official economic growth figures from the Chinese government completely bely actual conditions on the ground, and that the economy is in much worse shape than investors are being led to believe.

"The Chinese growth was maximum 4 percent. Now, in my view, it is maximum 2 percent and maybe even negative," he told Greg Bonnell on The Business News.

Faber suggests China has been slowing down for the past three years, triggering weakness in the price of commodities such as copper, gold and crude oil as the world’s second-largest economy consumes fewer of those raw materials. He says that in turn has caused a "vicious circle" of tumbling incomes for commodity-producers and subsequent cost-cutting initiatives. That fallout has taken a major toll on many national economies, with Canada among those most significantly hit.

"What we have is a general downturn in the global economy at the present time that will have a negative impact on earnings," he said. "That's why the markets are selling off and emerging markets have been selling off for a long time. The U.S. was in lalaland to believe that their economy and their corporate earnings would not be affected."

Faber says U.S. equity markets are currently "extremely oversold" and that a short-term rebound may be in the mix, but he argues more pain is likely to emerge. He also highlights precious metals as the one asset class that may offer a glimmer of hope for commodity-producing economies such as Canada and some safety for investors looking to shield their investments.

"There's not much other good news for Canada at the present time," he said.

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