ANALYSIS
THE INVESTOR
|
07
B
ritain may be an island, but in economic matters what
happens here is powerfully influenced by what happens in
the rest of the world.A prime concern about the global
economy in 2015 was China, whose growth rate slowed,
giving rise to fears of a hard landing. But some degree of
slowdown was inevitable.When a country is very under-developed
there is a big gap between its own position and that of the global leader.
This affords ample scope to register rapid economic growth just by
catching up with the leader.The closer the country is to the leader (ie,
the more developed it is), the less the scope for catch-up growth.We
have already seen that in economies like Japan, South Korea andTaiwan.
But there are some structural issues that could threaten something
worse than a hard landing if they are allowed to get out of hand. In
China, investment is running at just under 50% of GDP
1
.The authorities
have got to put more emphasis on reducing investment and boosting
consumption. Connected with the investment boom, there are
serious issues with debt; both the sort that sits on bank balance sheets
and the sort financed by bonds. Debt has risen very fast and some
of it is of dubious quality.Accordingly, there is a risk of a financial crisis
and this risk will be all the greater if the economy slows down markedly.
Even so,while I am sure that there will be bumps and dips, I amnot
unduly worried about China.There was a panic in the summer because
the stockmarket fell, but that was confusing the economy with the
markets.The Shanghai Composite did fall sharply but it had also risen
sharply beforehand, so a fall was not a surprise and won’t have adverse
consequences for the economy.Most importantly, the Chinese authorities
have ample roomto take stimulative action.And,if the need arises,theywill.
Meanwhile, in Japan, the policies pursued by Prime Minister Shinzo
By Roger Bootle
Executive Chairman, Capital Economics
ECONOMY
One of the key issues facing
the economy here is fiscal
tightening. The government
eased off before the election
but tightening is now resuming
and that will be a restraining
factor for the economy in
the year ahead
snakes
and
ladders
Global matters continue to
dictate whether the UK economy
moves forward or back
ECONOMIC
OUTLOOK
