Friday, September 21, 2012

The China "new normal"

The business press is starting to talk about the Chinese economy being in the "new normal" Growth has moved from double digit gains to something that is closer to 7.5%. The decline or new trend is similar to the decline in US GDP trend, perhaps a 40% decline in growth. The export engine is slowing and internal growth through consumption is needed. The idea that infrastructure programs will boost growth is unlikely. Finally there is a question on whether even 7.5% growth is too high. Electricity demand, a key indicator of Chinese growth,  is about half of the expected growth. 

The Chinese economy in a new normal would have an important impact around the world. 
  • The commodity countries like Australia, New Zealand and Brazil will see downward growth pressure and decline in balance of trade surpluses.
  • Germany will lose its export growth engine.
  • Trade wars will increase as the there will be a greater fight for both export and import dollars.
The new normal will lead to abnormal changes in global economy.

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