Perhaps not surprisingly given the coincidence of major economic issues in both Europe and the US, many respected commentators are arguing that the world is about to end. Immense challenges now face the downgraded US and the eurozone, as it tries to keep its currency alive. Luckily, however, there are other important global players and economic drivers – most importantly China, and its worries about inflation.
Demand in the so-called Bric economies of Brazil, Russia, India and China is now more important to the world economy than the US and Europe. In the decade that finished in 2010, the Brics added around $8,000bn to global gross domestic product, equivalent to about 80 per cent of that of the Group of Seven leading economies. The Brics will probably add around $12,000bn more over the next decade, double the US and the eurozone combined.
China is obviously the most important of the Brics, and in this regard, Tuesday’s new Chinese inflation figures are especially significant. For the month of July, these showed prices rising slightly again, to 6.5 per cent. Any rise worries China’s leaders, but this is actually likely to be the last increase for some time. By the end of the year the rate should fall back to – or perhaps below – 5 per cent. Next year, it should move back down towards 4 per cent. If this were not to happen, it might end up being an even bigger problem for Europe and the US, especially if the same were true elsewhere in the Growth World.