Monetary policy, inflation in The Monday Briefing
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China’s growth rate has slowed in recent years. Its sustainable growth rate has almost halved, to around 6.0% in a decade or so.
By Western standards this is an unattainably rapid growth rate. It would enable China’s economy to double in size every 12 years. China is still a fast-growing country, and one that exercises growing authority on the world stage. From technology to overseas investment and geopolitical influence China increasingly matters.
China’s Belt and Road Initiative (BRI) – dubbed by the authorities as “the Project of the Century” – illustrates the scale of the government’s ambitions. Launched in 2013 as a vast programme of overseas infrastructure, president Xi Jinping proclaimed it would restore the ancient Silk Road trading route that connected Asia and Europe.
For centuries governments have taxed, borrowed or created money to pay for public spending. All carry risks. Heavy taxes dampen growth and upset voters. Excessive public borrowing triggers financial crises. Printing money to pay for public spending can look tempting. But, as rulers from Henry VIII to Venezuela’s Nicolás Maduro have discovered, creating money out of thin air and spending it tends to destroy confidence and send inflation rocketing.
Last week saw UK unemployment fall to the lowest level since 1974. Against a backdrop of sluggish GDP growth this is quite an achievement. But the success of labour market policies should be judged on wider criteria. The quality of work, the flexibility of the jobs market and how inclusive and productive it is also matter. This week’s Briefing assesses the UK on each count.
There’s no doubt that growth in the West is slowing. The question is whether the slowdown could turn into a recession. Last month the US yield curve, a key gauge of future US growth, temporarily dipped into recessionary territory for the first time in ten years.
China’s economic transformation in the last four decades is one of the great economic success stories of modern history. Through liberalisation and opening up to trade China was able to grow by 10% a year between 1980 and 2018. Its economy expanded by a factor of 30 and it easily dodged recession during the global financial crisis. There is no precedent in history for an economy of this size growing at such a rate for so long.
This morning we are launching our quarterly “Global Economy in Charts” report, a 20-page slide deck, available here. Created by my colleague Debo, the report examines the big global macro trends and challenges. Charts can be cut and pasted into your own reports. Do drop Debo a line at email@example.com with ideas and comments.
We were taken by surprise last week by the scale of the downgrade to the OECD’s latest forecast for German growth. The OECD now thinks that the German economy will grow by just 0.7% in 2019. This is a big reversal of fortune; a year ago the thinking among economists was that Germany would grow by around 2.0%. At 0.7% German growth would be slower than the euro area as a whole (1.0%) and even the Brexit-embattled UK (0.8%).
Last October the International Monetary Fund warned of the risk of another global financial crisis. The Fund sees a 60% rise in global indebtedness in the last ten years and the exposure of banks to illiquid assets as major risks.
2018 was a tough year for British retailers. According to the Centre for Retail Research, nearly 2,600 stores closed, the highest number since 2012. Recent high-profile casualties included HMV, Patisserie Valerie and Oddbins. Along with the structural shift to online shopping, high-street retailers are under pressure from a slowdown in consumer spending growth.