18 Jun WHAT ARE THE LIKELY IMPACTS OF THE CURRENT SLOWDOWN IN THE ECONOMY OF CHINA ON THE US STOCK MARKET? September 20, 2018Posted by: kajo No Comments
WHAT ARE THE LIKELY IMPACTS OF THE CURRENT SLOWDOWN IN THE ECONOMY OF CHINA ON THE US STOCK MARKET?
September 20, 2018Posted by: kajo No Comments
Background to the Study
In the recent past, the economy of China has been slowing down. After about a decade of growth which averaged 10% per annum, China’s economy has been growing at an average of only about 7% in the last 2 years (Myers, 2016). In 2014, it grew at an average rate of 7.3% but declined to only 6.9% in 2015. Basically, the very latest statistics paint a very grim image for China’s economy, with the rate of growth registered in 2015 (6.9%) being the slowest in the last 25 years. The last three months to December 2015 registered an average growth of only 6.8% (Center, 2016).
As a result of this worst ever economic performance for China in a quarter of a decade, concerns are emerging about the possible impacts on the financial markets across the world (Suzuki, 2014). Given the fact that China is the world’s second largest economy, any economic slowdown is bound to have far-reaching financial effects on the world in general and major economies in particular. It is for this reason that the US – which is the world’s largest economy – is particularly concerned. It is especially expected that the US stock market might be negatively impacted by the slowdown in China (Gough & Bradsher, 2015).
At the start of trading in 2016, both the Dow and NASDAQ registered significant declines. The Dow fell by as much as 467 on the first day of trading. However, it managed to recover slightly to end the day 276 points down. On the first trading day of 2016, NASDAQ lost 2% (Center, 2016). These losses in the US stock market were directly attributed to overnight crashes of stocks in China. As such, the first panic attack affecting the US is from the economic slowdown in China, a slowdown which seems to be dramatically faster than had been anticipated. There were expectations hat China’s economy would peak and slow down at some time after having grown almost constantly for the last two decades. However, it was not expected that it would slow down so fast. It is this fast rate of decline that is triggering panic in US stock markets (Nielsen, 2015).
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