Michael McMahon's picture
Affiliation: 
University of Oxford
Credentials: 
Professor of Economics

Voting history

China’s growth slowdown: likely persistence and effects

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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).

Answer:
Agree
Confidence level:
Very confident
Comment:
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.

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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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Answer:
Agree
Confidence level:
Very confident
Comment:
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.

ECB's quantitative easing

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Question 2:

Do you agree that the structure of the ECB's QE programme makes the Eurozone more fragile and increases the risk of one country leaving the euro?

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Answer:
Agree
Confidence level:
Confident

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Question 1:

Do you agree that the design of the ECB's QE programme reduces its effectiveness? 

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
I think the important detail is what we are comparing. If we are comparing a US- or UK-style, single-central-bank implemented QE then I think the ECB programme may be somewhat less effective. It would also be better if the programme was a hypothetical one that absorbed more of the risk and included incentives to expand lending to the small and medium enterprise sector. This suggests an answer of "agree". But if the alternative is no programme at all, then I think the ECB design is more effective given the economic situation in the euro area. It has already taken a long time to get the compromised version into play, and by all accounts it was only with the concessions that the policy has come in. This suggests "disagree". I opted for the middle ground but should note that I welcomed the extra policy action by the ECB.

Deal or no deal: The Greece standoff

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Question 3: Do you agree that implementation of the agreement will lead to an expected decrease in Greek debt repayments?

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Answer:
Agree
Confidence level:
Confident
Comment:
I do not think that now is the right time to push for tax increases in Greek though clearly dealing with Greek tax compliance is an important long-term reform for Greece. In addition to the economic costs (Q1), there are huge political costs to the Syriza party to signing up to the current agreement. As such they would need to be given a pretty significant debt reduction to take home to appease the electorate in Greece.

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