Friday, April 19, 2019

Economics: Welcome To The New Global Economy

 (Drivebycuriosity) - The global balance is shifting faster & faster. The economic data from this week confirm this impression: China`s economy is re-accelerating and the US economy experiences a soft spot. As a result China`s weight in the global economy is rising fast, while the US is relatively falling back.

In March Chinese retail sales grew 8.7% year-on-year, faster than in February (plus 8.2% ). China's industrial production jumped by 8.5% year-on-year in March 2019, following a 5.3% rise in the previous month and beating market consensus of a 5.9 percent gain. It was the biggest gain in industrial output since July 2014 (industrial).

The US economic data are less impressive. The growth rate of the US industrial production slowed to 2.8% year-on-year (chart below industrial ) and the retail sales growth (ex food & gasoline) decelerated to 3.7% year-on-year (chart below calculatedrisk ). American businesses expanded in April at the slowest pace in 31 months, according to IHS Markit's survey of business executives.  "The U.S. economy started the second quarter with its weakest expansion since mid-2016 as businesses reported a marked slowing in output, new orders and hiring," said Chris Williamson, chief business economist at IHS Markit (marketwatch).








The new data confirm that China is continuing her secular catching-up process, which is fueled by extreme income & wealth differences to the US and other Western nation values. China`s growth is fueled by a rapid transformation process.  The country is transforming from an industrial & export-focused economy into a modern system like the US, where most of the GNP is fueled by consumer spending. Many peasants are moving to the huge metropolitan centers which are spread all over the huge country to lift their standard of living. This creates a fast rising affluent middle class, giving consumer spending a boost as the strong retail sales demonstrate.  The consumption power of 1.4 billion Chinese population becomes more and more the growth engine of Chinese economy. China´s growth gets tailwinds from the technological progress and advances of Internet, automatization of industrial production and 3D-printing. These developments raise efficiency and  productivity of China´s economy.

The chart below shows how much the global economy has already changed. In 2018 the Asian emerging markets, lead by China & India, created already 34% of the global GDP, almost as much the US & Europe together.  Even if the  US & Europe would shift into a deep recession, as they did in 2008,  the negative drift would be compensated by the strong growth in Asia.






Welcome to the new global economy!

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