The China growth story
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Brenda Kelly, senior market strategist at CMC Markets, looks at whether the UK can expect a large ripple effect from slowing Chinese GDP growth.
Since the World Bank revised down its forecast for Chinese growth to 8.2 per cent for 2012, there has been much discussion about what this might mean for the global economy and the UK.
In truth, the slowdown is not that unexpected, not only because of internal problems but because of fall backs in the US and European economies. The Chinese government won’t be surprised, since their official growth target for 2012 is 7.5 per cent.
Expectations are high for China, but 7.5 per cent is not exactly recession territory. We must remember that for the last eight years the average growth rate for China has been around 10 per cent, which is quite extreme. External demand might be weakening but China still has a lot of powder left in its arsenal in the form of vast foreign currency reserves.
As for the effect on the UK, I don’t believe British reliance on China is as much as you might think. We saw a 1.8 per cent growth in UK retail sales in March, which is a lot better than expected. Despite the disappointing UK GDP figures for the first quarter, domestic demand seems to be helping British businesses.
China is the world’s second largest economy but it is still hugely reliant on the US and European markets. An interesting area to keep an eye on is whether China will work with the International Monetary Fund (IMF) to help stabilise the Eurozone. This will again feed into Britain, as we are very reliant on the Eurozone at present.