The
global economy is in a pretty fragile state at the moment. And everyone
seems to have turned their attention towards Greece. However, a certain
Dr Marc Faber believes that there's a more dangerous threat lurking on
the horizon. And it answers to the name of China. "I think the
biggest risk is actually China because if you look at Greece, it's an
insignificant economy," Faber is believed to have said to a business
channel.
Faber backs up his thoughts with some hard data. He argues that China is the single largest contributor to global economic growth. Quite certainly so. As per the IMF, the dragon nation's contribution to world's GDP growth during 2010-13 had been to the tune of 31%, up from just 8% in the 1980s. Thus, it can be easily concluded that a slowdown in China will have a significant trickledown effect on world GDP growth.
Things have certainly not deteriorated in China overnight. Its bubble of overinvestment has been building up for quite some time. The very policies that held the dragon nation in good stead in the last decade or so are now coming back to haunt its economy. Chief amongst them would be its tendency to keep exchange rates intact and setting interest rates lower than inflation. What these policies have ended up doing is that they have created massive capacities, most of which are now lying underutilised and even running into huge losses. Obviously, these are proving to be a big drag on its economic growth as evident from the first quarter 2012 GDP growth, its weakest in three years.
Thus, if China doesn't get down to setting things right, it could see a long period of below par GDP growth and would also affect the GDP growth of a large number of nations dependent on it. Another more serious outcome could be a hard landing where a sharp downward spike could make matters even worse for the global economy. Thus, as can be seen, a slowing China is a much bigger threat to the global economy than the problems currently underway in Greece. Investors could do well to keep this factor in mind while making their investment decisions.
http://www.equitymaster.com/5MinWrapUp/detail.asp?date=05/19/2012&story=5&title=Heres-a-bigger-threat-to-global-economy-than-Greece
Faber backs up his thoughts with some hard data. He argues that China is the single largest contributor to global economic growth. Quite certainly so. As per the IMF, the dragon nation's contribution to world's GDP growth during 2010-13 had been to the tune of 31%, up from just 8% in the 1980s. Thus, it can be easily concluded that a slowdown in China will have a significant trickledown effect on world GDP growth.
Things have certainly not deteriorated in China overnight. Its bubble of overinvestment has been building up for quite some time. The very policies that held the dragon nation in good stead in the last decade or so are now coming back to haunt its economy. Chief amongst them would be its tendency to keep exchange rates intact and setting interest rates lower than inflation. What these policies have ended up doing is that they have created massive capacities, most of which are now lying underutilised and even running into huge losses. Obviously, these are proving to be a big drag on its economic growth as evident from the first quarter 2012 GDP growth, its weakest in three years.
Thus, if China doesn't get down to setting things right, it could see a long period of below par GDP growth and would also affect the GDP growth of a large number of nations dependent on it. Another more serious outcome could be a hard landing where a sharp downward spike could make matters even worse for the global economy. Thus, as can be seen, a slowing China is a much bigger threat to the global economy than the problems currently underway in Greece. Investors could do well to keep this factor in mind while making their investment decisions.
http://www.equitymaster.com/5MinWrapUp/detail.asp?date=05/19/2012&story=5&title=Heres-a-bigger-threat-to-global-economy-than-Greece
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