China’s Slowing Economy Spells Trouble for Global Growth
Amidst an escalating trade war, China’s economy is cooling down which is sending jitters across global markets and making the them more volatile.
The Slow Down
With an ongoing campaign to reduce credit, the growth of the world’s second-largest economy has slowed down quite a bit.
The Chinese economy grew at an expected rate of 6.7% in the second quarter, its slowest pace since 2016. The key reading on investment growth and industrial output slowed down in June, Retail sales held up.
The Trade War
While the numbers might not seem dangerous as such, the trade war between USA and China has just begun. US President Donald Trump had implemented tariffs on $34 billion worth of Chinese goods and he has also threatened to expand tariffs further on $200 billion worth of Chinese goods.
China has also retaliated with similar kind of tariffs which furthers this conflict.
Spillover Effects
The spillover effects are what worries economists the most.
China’s central role in a regional and global supply chain that feeds America’s economy with goods and services.
‘“We have not seen the worst yet,” said Iris Pang, Greater China economist at ING Bank NV in Hong Kong.
“For the rest of the world, it begins with a bilateral trade war between U.S. and China. But, it would not end with a bilateral impact”
China’s Trade Surplus with USA keeps Growing
According to Morgan Stanley, if USA goes ahead with $250 billion worth of imports, it hits China’s growth and could mean a drag of 0.3 percentage points.
The Chinese Government’s Actions
To be sure, China has the means to respond, given the massive fiscal and monetary firepower available to policymakers.
Economists expect the government to unleash fresh spending while JPMC expects the People’s Bank of China to cut the reserve ratio requirement by 50 points over the next year.
Impact on India
The trade war has a bad impact on the global economy, in the long run.
But, in the short run, India can act as a great substitute for China’s producing economy and can use it’s ‘Make in India’ tag to leverage this position.