by Hitesh Anand on July 30, 2010
China has surpassed Japan to become second largest economy of the world.
Unprecedented growth of Chinese economy in past 30 years has made this country the true economic superpower of the world. Rampant growth in almost every sector of the economy and huge infrastructure and energy demand has made China an engine of growth for world economy.
China surpassed UK and France in 2005 and then Germany in 2007 to become the third largest economy of the world. China may well take over US as largest economy of the world by 2025 as predicted by World Bank, Goldman Sacs and many others. Being on number 1 spot will depend upon how Chinese government changes its exchange rates.
“China, in fact, is now already world’s second largest economy”, said Yi Yang, China’s chief currency regulator, in an interview with China reform magazine posted on website (www.safe.gov.cn) of his agency, the state administration of foreign exchange.
But still, China is a developing country. Chinese per capita GDP is $ 3,800 which is a fraction of the GDP of Japan, US and other developed economies. China’s growth, many argue, is unbalanced as Yuan is still largely undervalued. Chinese government is still not ready to make Yuan a global currency. Tight monetary policy may become hindrance to growth and a cause for instability of Chinese finance in future. Recent steps from Chinese government to let Yuan appreciate against major currencies of the world are the signs that Chinese government might be on the way to let ‘Yuan be pegged by free market’. Amalgamation of Chinese economy with other economies will be possible only when China allows full convertibility of Yuan. Chinese government holds a reserve of $2.45 Trillion and it plans to stick with this reserves which means Yuan will be pegged against Dollar for some time to come in future.
by Hitesh Anand on July 30, 2010
US Q2 GDP growth is expected to be 2.5% which is less than last quarter growth of 2.7%. Many economist fear that US economy is now stalled as it has been showing almost constant growth rate since past three quarter. This means US may be heading towards ‘Low Growth Trap’ if US government does not take proper steps to speed up the recovery. Japan has seen this phase of low growth and deflation with nearly zero interest rates for past 20 years. Federal Reserve Chairman Ben Bernanke has said last week that central bank may take further policy action if the world’s largest economy doesn’t continue to improve. Asian Stock fell today on expectations of weak US economic data.
Job market is still a dismal picture. Number of jobless claims in the week ending July 24, the advance figure for seasonally adjusted initial claims was 457000, a decrease of 11000 from the previous week’s claims but the company payroll rose only by 83000 in June which was less than economists’ expectations. Economy lost 125,000 jobs and unemployment dropped to 9.5% as discouraged workers dropped out of work force.
Inflation adjusted trade deficit stood at $ 45.1 Billion a month for the month of May-June. This was more than the previous month deficit of $42.3 Billion as imports increased faster than the exports.
Manufacturing sector is growing again as companies are increasing their inventories as world economic outlook improves further. Caterpillar, the world’s largest maker of construction equipment raised full year earnings forecast on higher demand from emerging economies. Rebuilding of stocks in warehouses has been the prime reason for the economic recovery in US as inventories were very low during the mid of worst economic crisis after World War II.
US economy has shown signs of recovery and seems to have dumped the fear of double dip but the labour and housing figures are the cause for the pessimism among the American. As the Euro Crisis settles down all the attention is back to the figures of US economy. Host of weak economic data in past few months has caused consumer spending to decrease. Consumer spending accounts for 70% of US economic activity.
