A shop worker in Jakarta, Indonesia, counts rupiah after a big fall in its value amid increasing fears for the health of the Chinese economy Photograph: Bay Ismoyo/AFP/Getty Images
China’s continued growth helped limit the impact of the global recession of 2009 but now fears are increasing that the world’s second-biggest economy could cause the next recession. China’s growth is slowing, with knock-on effects for producers of the commodities that power its manufacturing industry and for makers of goods bought by the country’s new middle class. The authorities have struggled to stop share prices plunging after a bubble fuelled by retail investors. China then stunned markets by devaluing the yuan last week – a possible distress signal that raised further questions about its policymakers’ ability to keep a grip on the economy.
The price of oil has more than halved over the past year because of an abundance of supply and dwindling demand, particularly from China. In the short run, cheaper oil has been good for developed economies such as the UK, where consumers have more money to spend after years of falling real wages. But in the longer run if weak demand is a sign that the global economy is slowing then the news is not so good. A partial recovery in the spring had sent oil back above $60 (£40) a barrel but renewed fears of a global slowdown have pushed Brent crude prices down by a third since June, where the price is now around $47.
US rate rise?
Ultra-low US interest rates have helped fuel booms in assets such as property and shares after investors, searching for a return, shunned cash and put their money into alternatives. The US central bank, the Federal Reserve, has been hinting for months that the first rate rise in almost a decade is looming. This has prompted jitters in equity markets and huge movements of capital as investors fear a rising cost of lending will affect business borrowing and consumer spending. Most economists expect the Fed to begin increasing borrowing costs slowly in September but that move will depend on employment data and other economic indicators.
Emerging markets have profited from sustained investment for most of the decade but sentiment has changed, quickly. Such markets suffered an outflow of almost $1tn of funds in the past year as investors prepared for higher US interest rates by moving into dollar assets and became nervous about the prospects for economies in Asia and Latin America. Once again, China has become the focus because its slowing economy affects confidence in other emerging markets. The Malaysian ringgit, the Indonesian rupiah and Thai baht have all fallen heavily, making it harder for governments and businesses to make payments in dollars.
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