It has been said that when the US economy sneezes, the rest of the global economy catches pneumonia. If true, it raises serious questions about the current global economic outlook. Not only is the US economy likely to soon be more than a sneeze. The same goes for the Chinese economy, the world’s second largest economy. These two economies combined now represent more than 40% of the monetary value of all goods and services produced in the world.

Among the reasons for fear that the US economy could soon head for troubled waters, the Federal Reserve belatedly acknowledged that the country has an inflation problem and that it will soon have to raise interest rates to put the genie back inflation in the bottle.

With inflation now at its fastest pace in 40 years, the Fed announced it would end its bond-buying program in March, paving the way for a series of interest rate hikes. ‘interest. At his last press conference, Federal Reserve Chairman Jerome Powell said the U.S. economy was now strong enough to withstand multiple interest rate hikes. This leads Goldman Sachs to believe there could be as many as five interest rate hikes this year

The impending cycle of Fed interest rate hikes will take place at a time when the country is experiencing both an equity bubble and a housing bubble. Indeed, at the start of this year, US stock prices were at nosebleed levels seen only once before in the past 100 years. At the same time, US house prices, even after adjusting for inflation, were above their level on the eve of the last US housing market crash.

The fact that these bubbles were founded on the misconception that interest rates will forever remain at today’s extremely low levels increases the odds that later this year the US stock and housing market bubbles will burst. When it turns out that interest rates are rising sharply and these bubbles burst, we will experience stress in financial markets, especially in the unreformed and largely unregulated non-banking part of the financial system.

At best, any setback in the US economy would have major implications for the rest of the global economy. But times are far from the best, especially as China’s economy now faces a host of challenges that likely herald another sharp downturn in that economy.

Among China’s main economic challenges are the severe difficulties of its real estate sector, which now accounts for about 30% of its economy. Many Chinese property developers, including Evergrande, are defaulting on their loans. Meanwhile, some 20% of China’s urban properties are now unoccupied and house prices relative to income have reached clearly unsustainable levels.

The credit market bubble in China is equally troubling. According to the Bank for International Settlements, over the past decade, Chinese credit to the non-governmental sector has grown by 100% of GDP. That’s a faster rate of credit growth than that which preceded Japan’s lost economic decade or the US housing market crash of 2006. Typically, credit bubbles of the size China is currently experiencing are followed by many years of sub-par economic growth.

President Xi Jinping’s recent crackdown on the country’s high-tech sector and pursuit of its shared prosperity agenda further cloud China’s long-term economic growth prospects. These measures appear to be rolling back, at least in part, Deng Xiaoping’s reforms of the late 1970s that underpinned the country’s economic miracle.

The prospect of a simultaneous slowdown in the US and Chinese economies is clouding the economic outlook for the rest of the global economy in general and emerging economies in particular. Economic policymakers in these countries would ignore the impending global economic downturn at their peril.

Desmond Lachman is a senior fellow at the American Enterprise Institute. He was previously Deputy Director of the Policy Development and Review Department at the International Monetary Fund and Chief Emerging Markets Economic Strategist at Salomon Smith Barney.