Forget fears of a Grexit and German grumbles over the billions of euros going to bail out Athens, the real economic crisis is in China.
Yes what happens in Athens is important and if the Eurozone and Greece had said goodbye, the economic shock would have reverberated around the markets for a while.
But China is in a different league.
For many, the economy is wilting and many are willing a crash, but essentially, China is not a star global economic performer but is doing just enough to stay away from danger.
According to Schroders‘ Emerging Markets Economist, Craig Botham, GDP figures posted for the second quarter were better than expected but not startling.
Bubble to burst?
The important number is a 7% year-on-year increase, which would be a boom time for Britain and America, but disappoints after years of double digit growth reported by Beijing.
Growth was also up quarter-on-quarter, from 1.3% to 1.7%.
“Call us cynics if you like, but our model showed the Chinese GDP was nearer 6.3% than 7%,” said Botham.
“Some would say the government is juggling the numbers, but breaking the GDP down, we can see that some of this growth comes from a stock market bubble. That can never be a sound basis for economic growth and is likely to burst at some point.”
Nigel Green, chief executive of global financial services giant deVere Group has also had a close look at the Chinese economy.
He argues that any slowdown in China will lead to less growth in the world economy.
Global recession
“China is responsible for 12% of global GDP and 18% of the world’s manufacturing. General Motors sells more cars there than in the States and Apple see China as the company’s most promising market,” he said.
“It’s crazy to think any slowdown in China will not have an adverse effect on the rest of the world.”
Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management seems to agree with Green.
Sharma expects a continuing Chinese slowdown to put the brakes on world economic growth.
“China is like a whirlpool sucking in other economies and a slump in China could trigger another global recession,” he said.
“The world economy is vulnerable to what happens in China and the next couple of years are make or break. The government has got to reignite the economy.”
