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80-Revision_China_Effect_2011 - Macroeconomic Revision Note...

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Macroeconomic Revision Note: The China Effect "I don't think of Brazil, Russia, India and China, (BRIC) as emerging markets. It is an insult and inopportune. And in any case, they are different markets. The BRIC economies are increasingly the major story for the world economy; they have lifted the world economy's growth trend from 3.7 percent to 4.5 percent.” Jim O’Neill, Goldman Sachs, March 2011 “China is rife with overinvestment in physical capital, infrastructure and property… Eventually, most likely after 2013, China will suffer a hard landing. All historical episodes of excessive investment – including East Asia in the 1990s – have ended with a financial crisis and/or a long period of slow growth.” Professor Nouriel Roubini, April 2011 What is happening in China and in China’s changing economic relationships around the world is and will continue to have a profound impact on the UK and European Economy Macroeconomic summary for China (2006-2011) Main indicators 2007 2008 2009 2010 2011* Gross domestic product (% change in real GDP) 14.2 9.6 9.1 10.5 9.7 Consumer price index (annual % change) 4.8 5.9 -0.7 3.1 3.3 Fiscal balance - as a percentage of GDP 1.9 0.9 -1.2 -1.9 -2.2 BoP Current account balance - as a percentage of GDP 10.6 9.6 6.0 5.8 5.9 Economic Structure (% of GDP) Share of GDP by value added from Agriculture 10.0 9.5 9.0 8.5 Industry 54.3 54.7 55.5 56.0 Services 35.7 35.7 35.5 35.5 Total population (millions) 1,328 1,431 GDP, PPP terms (US$ billions) 7,967 10,084 GDP per capita, PPP terms (US$) 5,999 7,517 2011 is a forecast, Sources: OECD World Economic Outlook, May 2011 (forthcoming), World Bank, PWC Analysis 2009 was a year of global recession (world GDP fell 2% and world trade slumped by 12%) Trade and Investment Prices and Jobs External shocks in the world economy •UK-China trade balance (-$23bn in 09) •80% of Britain's exports go to advanced economies rather than the emerging ones - this will change in the years ahead •Net ±lows of FDI and other capital ±lows between China and the UK •Impact of Chinese growth on world price levels for products / commodities •Big shifts in comparative advantage affect output and jobs in many UK industries •China (and Asia) as an engine of growth •Trade imbalances, capital ±lows and international ±inancial stablity •China's trade and investment with other emerging/developing countries
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Revision points from the table 1. Economic growth and economic structure: o Strong growth of real GDP continues – some context is that world GDP growth per annum over the last twenty-five years has been 3.7%. In the last decade, the increase in Chinese GDP has been seven times the rise in the GDP of Japan o China has a new growth target of 8% pa for the next five years – a downgrading of growth but still way in excess of normal trend growth for any of the advanced economies. o
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80-Revision_China_Effect_2011 - Macroeconomic Revision Note...

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