22 October 2014

The Implications of Slower Chinese Growth

One of the most under reported stories over the last couple of weeks has been the slowing Chinese economy. In an article in Reuters, Chinese growth fell to 7.3% between July and September from a year ago. It was the weakest since the global financial crisis.

This has prompted some to speculate whether the Chinese government will provide additional stimulus to prevent a further slowdown. In many ways China has copied the debt strategy of Europe and the United States over the last several years to try and grow it’s economy.

 According to an article in the Economist, China’s total debt has soared by 100% of GDP since 2008 and now stands at 250% of GDP. In an article on ZeroHedge, a report by the business-research group the Conference Board, cited that China’s growth will slow sharply during the coming decade to 3.9%.

The Global Economy is Linked

Over the last several years China has been the growth engine for the world economy. However, now that China has its own challenges how will this affect the growth prospects for the rest of the world?

The other major economies of the world have all been pursuing the same policies of debt and credit expansion. Japan, the US, England and the Euro currency region are all experiencing little or no growth at the same time.

Without a robust major economy like China how will the world economy grow itself out of the debt that has been accumulated? The solution for indebted countries is currency devaluation.  

Inflation will be pursued at all costs 

There was a good article in Bloomberg that discussed how currency wars are evolving with the goal of avoiding deflation. With little or no growth central banks are forced to keep rates low and pursue inflation at all costs.

With most of the worlds governments and central banks pursuing the same polices it is challenging to predict how this will unfold economically country by country. The outcome is uncertain to even the most astute financial professionals. In this type of environment having some of your money in hard assets makes good sense.

Author: celticgold.eu

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