China’s economic slump may yet wash up on foreign shores

Source: The post is based on the article “China’s economic slump may yet wash up on foreign shores” published in Live Mint on 14^th August 2023.

Syllabus: GS 3 – Economy – Growth & Development

Relevance: About the global economic scenario

News: The current situation raises concerns over global imbalances arising out of China’s declining economy.

What are the concerns with the Chinese economy?

China is facing multiple challenges. Recent reports indicate setbacks in its economic recovery, with notable declines in exports and imports, and even consumer prices falling in July, raising concerns over deflation.

There is also a lack of demand in China which raises worries about the overall health of global economic conditions. The real estate sector is also a significant cause for concern, with Country Garden, once a major sales leader, now facing instability.

The solution to this involves enhancements in fiscal measures and a reduction in interest rates. Meanwhile, the global economy relies on the US to sustain growth.

How is the US economy performing?

There are very less chances of recession or economic slowdown in the US. The job market in the US is doing well, and while prices are still higher than the goal set by the government, they might not go up much more.

Recently, JPMorgan also said that a big economic decline is unlikely. People are less worried about smaller banks now.

However, according to the chief US economist, the risk of the economy getting worse is still quite high. Hence, it would be a mistake if the current positive situation in the US led to overconfidence.

For instance, in the late 1990s the US experienced a technology-driven economic boom, low unemployment, and mild inflation. During that time, Japan, once seen as a major economic competitor to the US, was struggling, along with many East Asian countries.

This situation made people confident over the US economy. However, in 2001, the US experienced a recession, and this was followed by major European countries facing economic difficulties.

Hence, a key takeaway from this is that while the US economy is performing, the US should also be concerned about the possibility economic challenges witnessed in other parts of the world.

What is the way ahead?

Despite concerns about China, its central bank doesn’t seem to be taking strong action to deal with the problem. At the same time, in the US, prices for things are still quite high.

Hence, the global economic scenario raises worry and a suitable action is needed by both the countries to revive their economy.