The global economy, we thought, was firmly on the path to recovery. The last two years have seen the UK regain its footing, and this year growth is set to hit 2.6%, according to the CBI and its analysts. Elsewhere in the world it’s been something of a mixed bag; good growth in America, torrid times in Greece; strong in India, stagnant in France. The list could continue, but it’s clear that whilst the macro picture of broadly positive, the micro one still looks a little uncertain. One consistently big hitters for growth has been China, which has become a true global force with a nigh on unassailable manufacturing base and growing service economy. Here at Custom Fittings, our sales of hydraulic steel fittings to China are only a small part of our business and show no signs of slowing down
Last week though, we see China’s so called ‘Black Monday’, where the Chinese stock market suffered a stunning 9% drop, as a sell off that had been rumbling on for weeks turned into a total rout. It was the biggest one-day drop off that the Shanghai Composite index had felt since 2007 and its shockwaves hit around global markets, sending the Sydney and Wall Street markets into a panicked fall and the sights in London as dramatic moves on the FTSE 100 were eerily reminiscent of the final days of the global market crash.
The worries went beyond a mere market overvaluation though, because underlying it was growing signs that China’s economy was slowing at a sharper rate than previously thought. Growth in China was at 7.4% last year, the slowest rate for 24 years despite being extremely high globally. Notably, it was also the first time the number had failed to meet or exceed the official target, indicating national economists who were losing control of the flight of their economy. Now, there are real doubts that the country can hit this year’s target of 7%. Interventions by Chinese policymakers have seen the devaluation of the Yuan but it does truly seem like the engine of worldwide growth might be struggling.
By the end of last week, European stock markets had recovered the ground they lost during black Monday, but it’s likely much too soon to tell whether what’s happening in China will pull the world back into a crisis. There are, however, some immediate impacts that could be felt in the UK. In this two part guide, we’ll look at what it might mean for the UK.
There’s been a lot of talk over the last decade about the state of the London property market. Rich investors from overseas have been purchasing huge amounts of housing in London, which is seen as an attractive and profitable market. That’s driven up the cost of property, but with Chinese investors having less cash to splash around, it could lead to a slowdown in the London property market.
However, there’s some thought that turmoil overseas and volatile markets are driving investors into the UK, which is seen as a safe place to put your money. Here’s what Tom Bill, of London residential research group Knight Frank had to say: “The Chinese are increasingly focused on diversifying their assets and uncertainty over the performance of the stock market reinforces this. There is anecdotal evidence that Chinese buyers have intensified their interest in ‘safe haven’ global property markets, including London, as a result of the recent stock-market volatility,”
Aside from the strength of the London market (for those that can afford to buy into it), low interest rates will support demand and buoy prices, so the real issue isn’t investment leaving London, but coming in to it at a greater rate and pricing even more Londoners out of the housing market.
Join us in part two where we look at the impact on interest rates, manufacturing, pensions and shares.