| Economic Indicator | Unit | 2004 | 2005 | 2006 | 2007 | 2008F |
| GDP growth | % Year | 10.1 | 10.2 | 11.1 | 11.4 | 11 |
| Consumer spending | % Year | 7.2 | 8.5 | 8.7 | 9 | 8.9 |
| Capital investment | % Year | 21.5 | 22.3 | 21.5 | 20.7 | 18.6 |
| Exports | % Year | 32 | 29 | 25 | 23.5 | 18 |
| Inflation | % Year | 3.9 | 1.8 | 1.5 | 4.8 | 4.1 |
| Manufacturing wages | % Year | 12.3 | 12.3 | 14.5 | 15 | 14 |
| BoP Current Account | % of GDP | 3.6 | 7.2 | 9.4 | 9.7 | 10 |
| Official Inerest Rates | Per cent | 1.7 | 1.7 | 1.7 | 2.6 | 3.6 |
As we can see during last 5 years there is a stability economic growth in China. Rising in consumer spending was higher in 2007 and 2008, because there was Olympics in China during those years, so people spent more. We also can see that capital investments were increasing faster in 2005, because of forthcoming Olympics. As we know the most important consumer for China export is USA. In 2008 USA had (and still have) economic recession, so they spent less money on China import in 2008, that’s why increasing in China exports slowed down in latest years. Inflation went up faster in 2007 and 2008, because a lot of people spent money during Olympics, so demand increased and prices too(inflation – price go up). This type of inflation calls demand pull. Manufacturing wages increased faster during 2006, 2007 and 2008, because companies spent more money on production.
Anyway, lets talk about UK and China. As we know there a lot of goods, that were produced in China, in UK. The reason is that they much cheaper, because cost of production( especially cost of labor) in China is very low(that’s why a lot of companies in the world are buying and producing goods in China). Now we see that there is economic growth in China, so exchange rate in China also is increasing, this means that costs of exports (imports for UK) is also increasing, so UK’s companies have to pay more (especially now when the rate of pound is failing). Therefore we would probably see less supply on China goods in UK.
The China Effect is also having inflationary consequences for the UK economy, because China products are very cheap, so people will buy more, and it will cause inflation.
"because China products are very cheap, so people will buy more, and it will cause inflation"
ReplyDeleteBuying cheap goods cause inflation??
I mean increasing demand in UK will increase price for goods in UK
ReplyDeleteBut if UK will buy more and more goods from china, supply will increase so the demand as you said. But i think UK will make more profit from the cheap goods, and maybe the demand and supply will be in equilibrium, and there will be stability between demand and supply, the probability to cause inflation will be less, so we cant tell that " it will cause inflation" what do you think?
ReplyDeleteBut it's a nice post lexx.
may be. But how does China&UK trade cause inflation?
ReplyDeleteI haven't told that it will cause inflation... but it may cause, if the trades between china and UK will be less, so the goods will be less, which may cause an inflation. right?
ReplyDelete