Over the last month, fears have been rising that growth in the second largest world economy is cooling quicker than was previously anticipated. Weaker Chinese growth will have ramifications for trading partners, such as the United States and Europe, and also for international companies who do business there.
According to government figures the Chinese economy grew a strong 6.9% in 2017. This strong performance had continued into the start of this year, but many economists were skeptical that it would last. As it turns out, signs of a slowdown are now starting to appear.
Official economic data for May revealed that growth in vital areas like exports, investments by companies and consumer spending all declined compared to May of last year.
It is thought that the main reason for the decrease in growth this year is the Chinese government’s efforts to rein in the enormous levels of debt in the country, which have increased greatly since the worldwide financial crisis a decade ago.
Now, an escalating conflict with the United States is adding to China’s troubles. Both sides announced tariffs on $50 billion of each other’s products, and President Donald Trump has now followed these tariffs with a threat to impose duties on at least another $200 billion of Chinese goods.
If waves of US tariffs start to hurt China’s economy, experts say Chinese policymakers may stop the efforts to tackle risky lending and go back to their old habits.
So far Trump has announced tariffs on imports including steel, aluminum, washing machines and solar panels. In the wake of these tariffs, Canada, Mexico, China and the European Union are retaliating.
If political leaders were to follow through on their most dramatic trade threats, Barclays estimates that one whole percentage point could be knocked off worldwide economic growth next year. The World Bank is currently forecasting 3% expansion for 2019.
Kallum Pickering, a senior economist at Berenberg bank, has said that geopolitical risk is now at its highest level since the early 2000s. Senior policymakers are calling on political leaders to ease tensions, and to make it quick.
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