Economic Slowdown In Essay

Economic Slowdown In Essay-47
Yet as the world’s largest importer of raw goods, China’s fall in demand has undoubtedly had the largest effect.

Yet as the world’s largest importer of raw goods, China’s fall in demand has undoubtedly had the largest effect.

This volatility can scare investors and harm firm’s confidence in future investments.

For example, Shell just called off their Artic exploration after having already spent $4.1 billion pursuing it as the price of oil no longer justifies such pursuits.

However, the fall in the price of commodities has left net importing countries such as the US which currently has a 16% current account deficit, much better off and allows companies using commodities as inputs to generate much higher margins and offer lower prices, as a result lowering inflation.

Yet, this may in fact be a bad thing as interest rates in the US and UK are already almost zero and verging on deflation, now a major problem which is currently preventing the central banks from being able to raise interest rates - something that is long overdue.

Meanwhile revenues at British Petroleum have gone from $94.77B in Q3 of 2014 to now 61.80B Q2 2015.

This sort of volatility and the revenue fluctuations it has created have extended to these companies stock prices and beyond to the market as a whole as investors have panicked and pulled out of many positions.Therefore, the decline in China has managed to stop the FED from rising interest rates, not only because of creating very low inflation through a fall in the value of commodities but also through harming emerging economies revenues, putting more strain on them to pay off their debts and avoid bankruptcy which would only be made much more difficult if interests rates were to rise.Unfortunately, there are no other countries currently around that would be able to achieve the same sort of growth and demand that China did, leaving commodity prices and many of the largest commodity production lines to work below maximum potential capacity for some time to come.Find more statistics at Statista The existence of this slowdown and shift away for investments is a disaster for commodities.China is the world’s biggest importer of crude oil consuming one of every 13 barrels globally, it also imports 45% of the world’s copper and almost half of global aluminium, nickel and steel.To reflect this overall fall in revenues for exporting countries and the world as a whole the IMF has recently revised global GDP growth figures for this year from 3.8% a year ago, to 3.3% in July, and now 3.1%.Beyond the current shift from investment to consumption which is likely to only continue, China’s currency has also been devalued by the government which unexpectedly depreciated the renminbi by 2% while the US dollar has appreciated in anticipation of the American Federal Reserve (the FED) raising interest rates.As evidence, the Asian Development Bank predicts that excluding Japan, the whole South East Asian region’s growth will be 5.8% this year vs. In the latest sign of the slowdown in the world's second biggest economy, Chinese manufacturing activity fell in September to its lowest in six and a half years, according to purchasing managers data.This slowdown has occurred because of the economy shifting from investment to consumption as the main future driver of growth.For example, 90% of Saudi Arabia’s exports are oil while in Nigeria, oil accounts for 85% of government revenue and as a result government revenues are meant to be 40% lower than the year before.Even more developed economies such as that of Australia, Canada, South Korea, and Norway have been damaged by the fall in commodity prices and Chinese demand.


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