Global GDP – 2007 – 2013. It’s a Chinese Roadshow

Here is an image from The Economist which shows how the global economy is very reliant on China. Some key points from the graph:

* Since 2010 China has contributed 35% of global growth
* Developing economies overall have contributed over 70% of global growth during the same period.
* Developed economies are responsible for approximately 25%

World GDP composition

3 thoughts on “Global GDP – 2007 – 2013. It’s a Chinese Roadshow

  1. Mark Post author

    Hi John
    Thanks for your comment on the blog. In answer to your question I have come up with this

    1) Interest rates have been at all-time lows for almost a half-decade
    True they have been low but I don’t think we have seen the level of borrowing like that of the sub-prime crisis in 2007/8. Inflation has been very low over the last couple of years -(below 2% target rate of OCR). There will be an increase in the CPI but that will come from demand pressures especially from the Christchurch rebuild.

    2) Property prices have doubled since 2004
    3) New Zealand has the world’s third most overvalued property market
    4) New Zealand’s mortgage bubble grew by 165% since 2002
    5) Nearly half of mortgages have floating interest rates
    6) Mortgages account for 60% of banks’ loan portfolios

    All the above refer to the property market. There is potential that the escalation in house prices could have a significant downward price adjustment from a future economic shock – OECD and IMF have warned of this and Moodys Standard & Poors and Fitch have also made this a prevalent point in reports. RBNZ is raising capital requirements for house lending – Loan-to-value ratio – banks holding additional capital buffers. Macro prudential instruments could have reduced credit demand and asset price pressures in housing boom of 2003-2007. What is needed is an increase in the productivity of the construction sector, the freeing up of land and a change to the tax system for investment properties– supply side measures.

    7) Finance, not agriculture, is New Zealand’s largest industry
    Agriculture is a great opportunity for NZ. With the growth on China and India, NZ could be their food supplier

    8) New Zealand’s banks are exposed to Australia’s bubble
    Credit ratings in the Australian banking sector have remained strong and extraordinarily stable by global standards in the aftermath of the global financial crisis, which began over five years ago. Australia sits alongside Switzerland, Canada, Germany and Hong Kong as one of the safest banking sectors in the world, according to an S&P report – (SMH)

    9) Australian and Chinese buyers are inflating the property
    But if this is the case then we are not talking about New Zealanders that are being exposed to the property bubble. Also a lot of these overseas buyers have cash.

    10) New Zealand has a household debt problem
    Households are highly leveraged with household debt around 145%of disposable income. This is a concern and although a correction in the debt ratio was gradual after the GFC it has picked up of late.

    11) Government overseas debt has nearly tripled since 2008
    Correct – but in relative terms NZ’s ability to borrow has been much cheaper. New Zealand needs to plan for change now, not in 10 or 20 years time, if we want to circumvented being hindered with debt.

    12) The New Zealand dollar is overvalued
    This is now a common occurrence and inevitably exporters will have to get used to it. The value might not be as high this year as currency investors are more tempted to bigger economies like the USA that have started a tapering process and are coming out of recession.

    There are concerns in NZ but I think they are not as bad as made out in the article. I can’t see us going through a sub-prime crisis like the US or a banking calamity. NZ can be expected to be knocked about a bit by domestic issues (drought, fiscal reduction, Christchurch rebuild) and longer-term structural changes in the global economy. There are nearly more people in China and India than in the rest of the world – these 2 economies are only in first gear.

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