China’s growth slowdown: likely persistence and effects

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Question 1:

Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%.

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Question 2:

Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

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Summary

What are the prospects for the Chinese economy and its international impact? Three quarters of the experts in the Centre for Macroeconomics (CFM) monthly survey believe that China’s annual growth rate will be less than 6% over the next ten years or so. But the panel is divided on whether the slowdown will have a significant impact on the UK economy.

The Chinese economy grew at an average annual rate of 9.75% between 2000 and 2014, according to the World Bank’s World Development Indicators. This performance has been widely hailed – not only for its impact on poverty alleviation in the world’s most populous country, but also as a driver of the global economy. Positive spillovers from Chinese growth are thought to include the availability of cheap producer and consumer goods, benefiting consumers and firms in developed countries, and increased demand for commodities, benefiting emerging markets. Some blame the Chinese growth model for creating imbalances in the global economy.

China’s growth rate has fallen since the beginning of this decade. Official annual growth was 9.5% in 2011, 7.8% in 2012, 7.7% in 2013 and 6.9% in the first three quarters of 2015. The Chinese government forecasts a growth rate of 7% for 2015; the IMF forecasts 6.8%; the World Bank’s Global Economic Prospects forecasts 7.1%; and the Asian Development Bank’s Asian Development Outlook forecasts 6.7%. Some private sector forecasters are markedly more pessimistic. In any case, while there is disagreement on the extent of the slowdown, its existence is not in dispute.

The slowdown has been variously attributed to: excess capacity as a result of a growth model too focused on investment; the accumulation of excessive leverage in several sectors of the economy; and the exhaustion of the engine of growth represented by rural-urban migration, as rural-urban income differentials have narrowed and cities have become increasingly congested. Some of these factors point to a deeper slowdown, while others imply that the growth rate should now stabilise or, if properly managed, even revert to higher levels.

Persistence of China’s growth slowdown

The first question of this month’s survey is about whether we have seen the full extent of the slowdown, or whether further lower annual growth rates are in store for the medium term.

Q1: Do you agree that the Chinese economy is likely (say more than 50% probability) to maintain in the medium term (say, for at least ten years) a rate of annual growth exceeding 6%?

Thirty-two of our panel of experts responded to this question, of which 75% disagree or strongly disagree. All of the remaining 25% agree or strongly agree. These shares are virtually unchanged when weighted by the confidence with which respondents hold their opinions.

The reasons cited for thinking that growth will be persistently less than 6% include:

  • The fact that the gap in real GDP per head with developed countries has shrunk, leaving less space for catch-up growth – for example, John Driffill (Birkbeck), Charles Bean (LSE) and Akos Valentinyi (Cardiff) and Costas Milas (Liverpool).
  • The adverse demographic dynamics – John Driffill and Charles Bean.
  • The problems in the financial sector – David Bell (Stirling) and Martin Ellison (Oxford).
  • The diminishing flows of rural-urban migrants – Charles Bean.
  • The ‘intentional’ rebalancing from high-growth industry to moderate-growth services – Richard Portes (LBS) and Michael Wickens (Cardiff and York).
  • And the downward risks from ‘secular stagnation’ in developed economies or continued problems in the Eurozone – Wouter den Haan (LSE).

Those who feel that Chinese growth can remain high disagree that the scope for catch-up growth is being exhausted. For example, Andrew Mountford (Royal Holloway) points out that 30% of the labour force is still in agriculture, and Morten Ravn (UCL) reminds us that ‘GDP per capita is still far below the level of the industrialised countries’. Nicholas Oulton (LSE) also points to ‘huge investments in infrastructure and R&D’.

The most unconventional comment is in this camp: according to Patrick Minford (Cardiff), ‘the main factor creating belief in the forecast is that the Chinese will rally around because they fear disorder more than injustice and incompetence’. Minford himself, however, warns us that ‘there is substantial uncertainty about this forecast because the Chinese leadership under Xi Jinping is attempting simultaneously to do a lot of things: liberalise markets, constrain regional authorities from investing in their local champions, stop corruption, prevent rebellion by general detentions, stop a banking collapse while also enforcing tough budget constraints on borrowers, promote an aggressive foreign policy but remain a good member of the World Trade Organization, and so on’.

Consequences of the slowdown

Since Chinese growth has often been viewed as a driver for growth elsewhere, it would seem to follow that any persistent slowdown in China will have an adverse impact on global growth. This conclusion seems particularly hard to avoid in the case of commodity-dependent emerging markets.

In the case of developed economies, there is more scope for disagreement about the extent of China’s importance. Direct and indirect (that is, via third countries) trade links must be taken into account. Furthermore, the impact on developed economies may depend on the scope for these economies to switch commercial ties to other countries at a similar level of development to China. In addition, the attendant decline in commodity prices may be good for commodity importers. On the other hand, the Bank of England has signalled that it is concerned with global developments as risk factors for the UK.

Our second question this month is about the impact on developed countries and specifically the UK.

Q2: Do you agree that if the Chinese slowdown turns out to be persistent, it will have a significant impact on UK growth (say, in the order of a few tenths of a percentage point) and/or it will justify a material change in monetary policy (for example, in terms of the timing and speed of a return to ‘normal’ interest rates) and fiscal policy (for example, in terms of the timing and speed of fiscal contraction).

Thirty-four of our panel of experts answered, with 44% disagreeing or strongly disagreeing, 35% agreeing or strongly agreeing, and 21% neither agreeing nor disagreeing. Taking into account panellists’ self-reported confidence creates a stronger majority for disagreement: 52% disagree or strongly disagree, 36%, agree or strongly agree, and 11% do neither.

Panellists on either side of the issue disagree on whether the direct effect on UK exports would be large (due to China being one of the UK’s main trading partners) or small (due to no individual trading partner accounting for more than a small share of UK exports/GDP).

But some of the respondents who agree emphasise indirect effects. For example Michael McMahon (Warwick) stresses the effects the Chinese slowdown is already having on Australia, Indonesia and Germany (a large exporter to China) and argues that the knock-on effects on the UK could be non-trivial. Another concern (voiced by Charles Bean, who, however, neither agrees nor disagrees) is the possibility of ‘unexpectedly large losses for those UK banks with large exposures in Asia’. Finally, Wouter den Haan cites possible negative effects on confidence.

On the other hand, some of the respondents who disagree (Patrick Minford and Nicholas Oulton) reject the notion that UK growth in the medium and long run can be driven by factors other than structural features of the UK economy. Several of those who disagree also cite the favourable impact of terms of trade gains associated with lower commodity prices, and Richard Portes sees opportunities ‘from the Chinese switch towards consumption – in particular, foreign travel and educating Chinese students abroad’ as well as ‘Chinese financial liberalisation and the development of their financial sector’.

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How the experts responded

China's medium term growth prospects

Participant Answer Confidence level Comment
Jagjit Chadha National Institute of Economic and Social Research Disagree Confident
Like Japan before it and other rapidly growing countries, because as countries approach the efficiency frontier it just gets harder to squeeze out higher levels of growth. In any case, significant institutional reform, especially of the financial sector is going to be required for the growth to be sustained and even then growth will stall.
John Driffill Birkbeck College, University of London Disagree Not confident
Real GDP per head has grown substantially in China over the last thirty years. The gap between it an the most developed countries has narrowed. Future growth is likely to be slower. Population growth is going into reverse. There is likely to be a shift away from saving and investment towards consumers' spending in the coming decades. The growth rate of the Chinese economy is likely to slow down further in the coming years.
David Bell University of Stirling Disagree Confident
institutional impediments, sectoral and financial imbalances are likely to reduce China's sustainable rate of growth
Patrick Minford Cardiff Business School Agree Not confident
There is substantial uncertainty about this forecast because the Chinese leadership under Xi Jingping is attempting simultaneously to do a lot of things: liberalise markets, constrain regional authorities from investing in their local champions, stop corruption, prevent rebellion by general detentions, stop a banking collapse while also enforcing tough budget constraints on borrowers, promote an aggressive foreign policy but remain a good member of the WTO, and so on. This multi-dimensional balancing act is risky and while Chinese politicians command respect - if not love- because of their past ability to coordinate action in China through the Party, they are in the end just politicians and could fall from the sky. The main factor creating belief in the forecast is that the Chinese will rally around because they fear disorder more than injustice and incompetence. China has, as Coase's recent book and work by Lardy has shown, become a decentralised economy driven by the usual capitalist private sector forces. It has shown huge powers of adaptation towards a viable capitalist structure. Therefore it will probably adapt into an innovation-driven modern economy.
Richard Dennis University of Glasgow Disagree Not confident
David Cobham Heriot Watt University Disagree Confident
I think a growth rate of a bit less, say 4-5%, is more likely. China will still hgrow faster than western 'advance' economies, but surely the heady days of 9-10% growth are now over.
Mike Elsby University of Edinburgh Disagree Not confident
Sir Charles Bean London School of Economics Strongly Disagree Very confident
There are at least two reasons for expecting a sustained slowdown relative to past rates of growth. First, the rapid growth of recent years was in large part catch-up growth based on a very high investment share. But as the economy's stock of capital grows, so the marginal product from additional investment is bound to fall. Moreover, it will be difficult for the Chinese authorities to ensure that consumption increases by enough to take up the slack as the investment share falls back. Second, the rapid growth also relied on strong growth in the urban labour force, as workers migrated to the cities from the countryside. But the scope to maintain that is diminishing, while the growth in the working age population has slowed sharply, in part as consequence of the "one-child" policy (recent softening in the policy will make relatively little difference to the projected growth rate of the working-age population). Other countries that have experienced strong catch-up growth, such as Japan and Korea, saw growth slow as output per capita approached advanced-economy levels: China will be no different.
Sean Holly Cambridge University Disagree Confident
David Miles Imperial College Disagree Confident
Fabien Postel-Vinay University College London Disagree Confident
Jim Malley University of Glasgow Agree Confident
Angus Armstrong National Institute of Economic and Social Research Disagree Confident
Based on our global economy forecast using the National Institute Global Econometric Model (NiGEM) we estimate that China will grow by 5.9% between 2018-20 and slightly slower thereafter. Over the next ten years the slowdown in population growth and increasing in aging profile will be greater than in Europe. Our production function also suggests a gradual slowdown in TFP. The dynamics of the dependency rate and population look similar to East Asia (ex China) in the 1980s. The short term will depend on how sucessfully China can transition to its new development model as it liberalises its financial structure. This has rarely been a smooth process.
Martin Ellison University of Oxford Disagree Confident
History tells us that growth in excess of 6% p.a. for a period of over 10 years is typically only achieved when a country is either in transition or recovering from a particularly nasty shock (e.g. war). Growth in TFP alone is not sufficient to maintain such a high growth rate. The question then is whether China is in one of the cases of transition or recovery. The latter seems implausible as a driver of growth, and any transition may be reaching its limit. I see the downturn in the Chinese leverage cycle as a particular risk. The financial markets in China are still not particularly integrated which may prevent China having its own “Lehman moment,” but Chinese stocks are still a long way from their June 2015 peak and further deleveraging is needed.
Andrew Mountford Royal Holloway Agree Not confident
I'm no expert on China but from what I read China's growth resembles that of the Asian tigers as detailed by Young 1995 i.e. stemming from rapid growth of factors of production due to large investments in capital and human capital. At some point this will slow down when the balanced growth path is reached but as there are still over 30% of the chinese workforce still in agriculture (world bank) I think this point should be some way off. So absent a sustained world recession/ or domestic or international financial crisis - see question 2 - I would expect Chinese growth to be strong over the medium term
Andrew Scott London Business School Disagree Confident
Richard Portes London Business School and CEPR Disagree Confident
The deceleration is mainly the consequence of the intentional switch from industry to services and from investment to consumption. It will not be dramatic - no 'crash', just a normal reversion to rapid but not extraordinary growth rates, say 5%. And since we don't measure services output as reliably as we do industrial production, one can't be terribly confident of what the reported slowdown will mean.
Nicholas Oulton London School of Economics Strongly Agree Confident
The slowdown from 10% to the current 7% is already very substantial. I see no reason to think that a further slowdown is likely, given the huge investments in infrastructure, R&D and innovation which China has made. Of course it is possible that Chinese growth has been overstated for some systematic reason. But the question was about the slowdown, i.e. change in growth rate, not the level of the growth rate.
Morten Ravn University College London Agree Confident
Economic theory suggests that chinese growth should slow down as the economy approaches its longer term growth path. The chinese economy has grown strongly over the last decade and a half but GDP per capita is still far below the levels of the industrialized countries and its richer neighbours such as Japan and South Korea. It is clear that China will have to implement structural reforms to sustain growth over the longer term. Moreover, China has been hit by the drop in demand for its goods from richer countries that has followed after the 2007-09 crisis. On the other hand, it has invested hard in physical capital and human capital is following behind. Based on this, over the medium term, my view is that China should be able to sustain a reasonable level of growth unless market reforms are reversed.
Wouter Den Haan London School of Economics Disagree Not confident at all
There seems to be consensus that there has been and will be a reduction in China's potential growth prospects. The World Bank and the IMF project that China's growth could slow down to numbers around 6%. I think that these forecasts do not sufficiently take into account that the downward risk is larger than the upward potential, so I am inclined to be a bit more pessimistic myself. Regarding downward risk, I am thinking of consequences of secular stagnation in developed economies or continued problems in the Eurozone.
Charles Nolan University of Glasgow Agree Confident
Alan Sutherland University of St. Andrews Disagree Not confident at all
Michael Wickens Cardiff Business School & University of York Disagree Not confident
China is in the process of switching to a more consumer-oriented economy. This would imply lower levels of investment than in the past and hence a lower growth rate and an economy more like that of a more mature economy with less growth.
Paul De Grauwe London School of Economics Disagree Confident
Ethan Ilzetzki London School of Economics Disagree Not confident at all
Akos Valentinyi University of Manchester Disagree Very confident
In 2014 China's per capita GDP was about 25% of that of the USA. If China's GDP grew 8% per year, and USA's GDP grew 3% per year over the decade, then taking into account the projected population growth rates (0.5% for China, and 0.7% for the US), China's per capita GDP in 2024 would be 41% of USA's per capita GDP (37% if China grew 7%). It would be unusual for a country to catch up to such an extent to rich countries without experiencing any slowing down of its GDP growth. It is not unheard of, but it is rare. It is more likely that in the next few years China's growth will exceed 6% but it slowly falls below it during the second half of the decade.
Jan Eeckhout University College London Strongly Disagree Very confident
Michael McMahon University of Oxford Agree Very confident
The very easy answer is that I believe that official statistics will show such growth. However, there are (and have always been) question marks over the extent to which they are a true reflection the economic situation. I would be surprised if official figures dropped persistently below 6% and expect an average of around 7-8% at least for the next 5 years or so (barring another major global recession which might temporarily knock these numbers lower). That said, I think there is a more marked slowdown in China underway already. I am very uncertain as to the exact extent of it, but in my more pessimistic moments, it entails current and medium-term forecast growth rates of 3-4% rather than the official figures of 7-8%. The slowdown in manufacturing is clear from lots of official data sources and investment is therefore slowing. The uncertainty concerns the replacement of this demand with services output and consumer led expenditure. The problem is that, after years of examining the Chinese industry, analysts seem less clear on how to measuring the sectors that are supposedly filling the gap.
Francesco Caselli London School of Economics Disagree Not confident
Ricardo Reis London School of Economics and Columbia University Agree Not confident at all
Economic science is very far from being able to predict growth, especially over the medium term, with any confidence. Moreover, depending on how much of China's recent growth is due to Solow-type convergence, versus miracles (http://www.nber.org/papers/w11528) one could expect past growth to persist or not.
David Smith Sunday Times Disagree Very confident
China's trend rate of growth, currently 6.5% - 7% on official figures, is likely to slow further, probably to around 5% by the early 2020s, so a 10-year average of 6%-plus growth will be hard to achieve. What matters more perhaps is the quality of growth and the extent to which it will be better balanced, with a bigger contribution from consumption, which is the aim of the Chinese authorities.
Costas Milas University of Liverpool Disagree Confident

China's growth slow down and the UK economy

Participant Answer Confidence level Comment
Jagjit Chadha National Institute of Economic and Social Research Neither agree nor disagree Confident
A slowdown in Chinese growth will tend to reduce scope for UK exports to China but also may reduce pressure on scare commodities – so net-net I am not sure there will be a great effect one way or other.
John Driffill Birkbeck College, University of London Disagree Not confident
I doubt whether it will make any appreciable difference to the UK if China grows at 5% a year rather than 7%. It is not likely to make any difference to approporiate fiscal or monetary policy choices for the UK.
David Bell University of Stirling Agree Not confident
Direct effects limited due to relatively small UK exports to China, General excess supply and consequent global slowdown will have a more pervasive effect on UK economy, making it more difficult to correct imbalances (trade, budget) in UK economy.
Patrick Minford Cardiff Business School Strongly Disagree Very confident
China has of course been a major contributor to world growth over the last decade and even now is a material contributor. However it is wrong to view the world economy in terms of country 'growth drivers' (locomotives). The world has a 'supply side' or a 'natural rate' of output and growth. In the noughties world growth was exceptionally fast (close to 5% for much of the time) up to the crisis and the crisis itself was closely related to the disappearance of the world output gap, indeed very likely it went strongly negative, with manic demands for raw materials and consequent massive price spikes in these. I strongly welcome the more moderate growth rates that now are occurring, because they are generating a more normal output gap worldwide. There probably is a world positive output gap currently but through improving growth in the western world it is being eliminated. If China slows more than being forecast, then the loss of demand will be replaced by increased demand elsewhere. Will this require more stimulative monetary or fiscal policies? Possibly but there is no need yet. The low raw material prices of today are providing a large stimulus through a terms of trade transfer to western consumers and accompanying incentives for western businesses to invest. Meanwhile the zero interest rate policies and heavy-handed bank regulation are indirectly creating financial repression, subsidising governments and large corporates at the expense of savers and small firms. 'Normalising' interest rates and reliberalising bank regulation is needed for micro reasons, to eliminate these distortions.
Richard Dennis University of Glasgow Disagree Not confident
David Cobham Heriot Watt University Strongly Agree Very confident
A Chinese slowdown will certianly have adverse effects on UK growth - but the latter has plenty of its own problems, so the Chinese slowdown (or the eurozone crisis) cannot be used as an alibi for poor policy since 2010.
Ray Barrell Brunel University London Agree Confident
A persistent slowdown reduces trend growth, and the impacts will be very small. Two percent off trend Chinese growth would reduce UK trend growth by at most 0.1 per cent. However, the risks the Bank refer to are cyclical, not structural. If the cycle downturn is strong this will slow UK growth. The magnitude might be twice as high for the demand cycle as for the supply trend effect
Mike Elsby University of Edinburgh Disagree Not confident
Sir Charles Bean London School of Economics Neither agree nor disagree Not confident
My central expectation is that a sustained Chinese slowdown will have little net impact on the growth in UK aggregate demand, with the adverse effect on net exports roughly offset by the positive effect on consumption from the terms of trade gain associated with lower commodity prices. The one potential qualification is if the slowdown is so abrupt that it leads to unexpectedly large losses for those UK banks with large exposures in Asia, particularly Standard Chartered and HSBC. That could result in rather stronger adverse effects onto UK growth through financial sector linkages (this is a risk that this year's BoE banking stress test is intended to investigate).
Sean Holly Cambridge University Agree Confident
David Miles Imperial College Strongly Disagree Confident
Fabien Postel-Vinay University College London Agree Not confident
Jim Malley University of Glasgow Neither agree nor disagree Not confident at all
Angus Armstrong National Institute of Economic and Social Research Neither agree nor disagree Not confident
It depends what is already discounted in global markets for future world growth. Current bond yields suggest a benign growth and inflation outlook ahead.
Martin Ellison University of Oxford Agree Confident
China is the UK’s second largest non-EU import partner, so it is hard to see how a slowdown in China would leave the UK unscathed. According to the ONS, China is also the 6th biggest destination for UK goods exports. In this light, I can easily see the UK catching a cold when China sneezes.
Andrew Mountford Royal Holloway Agree Not confident
Again I have no expert knowledge on chinese trade links but in general this question is asking whether the world economy is inherently stable or whether is it fragile and liable to move to a radically different equilibrium in response to, on the face of it, small changes of circumstances (shocks). I think analysis of recent and past financial crises shows that the paradigm with multiple equilibria and potentially very large multipliers with respect to financial shocks is a good one and so should an event such as this happen a strong policy response would be appropriate.
Richard Portes London Business School and CEPR Strongly Disagree Very confident
The main impact is on Chinese imports of raw materials and semifinished goods. That can't be a significant proportion of our exports to China. The effects on us of the negative impact on emerging market exporters to China must also be second-order. And our exports will benefit from the Chinese switch towards consumption - in particular, foreign travel and educating Chinese students abroad, provided we have a more sensible visa policy. That may require a change of Home Secretary. Chinese financial liberalisation and the development of their financial sector (part of the structural switch) will also probably be positive for the UK.
Andrew Scott London Business School Disagree Confident
Nicholas Oulton London School of Economics Strongly Disagree Very confident
Question 2 is not clear about the time scale. Is it the same as in Question 1, 10 years? If so, I disagree. In the medium/long run UK growth does not depend on demand but on real factors (demography, total factor productivity, and innovation). The only qualification to this is that the UK has benefited from a terms of trade effect stemming from past Chinese growth: the opportunity to import Chinese goods at ever cheaper prices, whether directly or incorporated into other products (e.g. ipads). So if Chinese growth slows due to lower productivity growth then this favourable effect will be reduced. Over shorter time scales, where demand effects call the tune, I would expect the main effects to be on commodity exporting countries (not all emerging -- Australia is in this category). Exports to China are currently only about 1% of UK GDP. So indirect effects via other countries would have to be pretty big to impact the UK economy significantly.
Wouter Den Haan London School of Economics Neither agree nor disagree Not confident
The direct effect of a slowdown in the Chinese economic growth on the UK economy has to be small. But the Chinese economy is important for the global economy (e.g. the share of Chinese imports in global imports is close to 10%). Thus, the Chinese economy is likely to have an impact somewhere and it also may negatively affect confidence. So there may be a chain of events such that there will be a non-trivial effect on the UK economy even though the direct effect is probably small.
Morten Ravn University College London Disagree Confident
Although China is important for the world economy, it is perhaps not pivotal. But more to the point, I fail to see how UK monetary policy changes can do much about missing chinese growth and why it should have a significant impact on fiscal policy contraction beyond transitional issues.
Charles Nolan University of Glasgow Neither agree nor disagree Confident
Alan Sutherland University of St. Andrews Agree Not confident at all
Michael Wickens Cardiff Business School & University of York Disagree Very confident
Slower Chinese growth would - and should - have a marginal effect on UK monetary and fiscal policy. Slower growth would reduce the world demand for raw materials, especially the price oil and thereby UK inflation, and may slow world trade and hence UK exports and tax revenues. But neither is likely to have much affect on UK monetary and fiscal policy.
Paul De Grauwe London School of Economics Disagree Confident
Ethan Ilzetzki London School of Economics Neither agree nor disagree Not confident at all
Akos Valentinyi University of Manchester Agree Confident
If the world’s second largest economy slows down, it bound to have an effect on UK economic growth. However, much of this effect depend on how the slowdown comes about. If it happens slowly over time (no hard landing), then the impact may well be very small which does not require material change of UK monetary and fiscal policy. However, if there is hard landing for China, then it is more likely that economic policy in the UK has to react to it.
Jan Eeckhout University College London Disagree Very confident
Michael McMahon University of Oxford Agree Very confident
I think we are already seeing the large effects on countries in the Asia-Pacific region. Australia and Indonesia, both major commodities suppliers to China, are being hit by the manufacturing and investment slowdown. This then has a knock-on effect of causing slower growth in the region which is supposed to be a major engine of global growth. With much of the EU already weak, weakness in Asia-Pacific further hits European economies. This is especially true for Germany who is a major exporter to China (especially investment goods) and the largest EU economy. This spells trouble for UK economic growth even if the direct links are not as large as those with the US and EU. This also contributes to the relative strength of Sterling viz-a-viz the euro. Persistent Chinese weakness would simply exacerbate these effects lowering UK growth. As continued sterling strength would mitigate inflationary pressures, I would see no reason for the Bank of England to rush to lift off from their ZLB, or rush to get back to some new normal level of interest rates.
John VanReenen London School of Economics Disagree Confident
Francesco Caselli London School of Economics Disagree Not confident
David Smith Sunday Times Strongly Disagree Very confident
The direct impact of slower Chinese growth on the UK economy will be very marginal. Indeed, by easing the upward pressure on energy and commodity prices, the net effect is likely to be negligible. China's slowdown may already have had an impact on UK monetary policy by pushing out the timing of the first post-crisis rate hike but it is unlikely to have a permanent impact on UK monetary and fiscal policy.
Ricardo Reis London School of Economics and Columbia University Agree Very confident
There are many linkages between the Chinese and UK economy, including trade, direct investment, correlation of policies, and global financial cycles. While it is possible that these might offset each other, it seems more likely that they would not when it comes to UK growth. If so, the state of the economy would be different, so policy variables would likely have to differ as well.
Costas Milas University of Liverpool Strongly Agree Confident
This is indeed possible. China’s growth does not have a big direct impact on our economic prospects. Indeed, ONS data show that, in 2014, UK exports to China accounted only for 4.8% of total exports. However, there are significant indirect effects which should not be underestimated. Indeed, according to the IMF (http://blog-imfdirect.imf.org/2014/03/26/china-size-matters/), China’s share of global GDP increased from 2% in 1995 to 15% in 2013 (the US still accounts for 19% of global GDP).