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China topples Japan
Tue, 17 Aug Pre-Open

The global economic slowdown has seen many structural shifts in the global economy. The one which stands out the most is the growing clout of the emerging economies as against its developed peers. And this has been more than amply demonstrated the second quarter. For it has been then that Japan has lost its place as the world's second largest economy to China.

Japan's GDP growth in the second quarter was muted at 0.4%. In stark contrast growth was relatively healthier at 4.4% in the first quarter. China meanwhile has been growing at a scorching pace of 10%. And if this trend continues, China would most likely maintain its position as the world's second largest economy.

But Japan's muted growth has raised some concerns. For starters, the flattish growth in the second quarter means that the recovery of the developed nations is running into rough weather. The stimulus measures and the near zero interest rates have raised concerns of inflation in the coming years. But many believe that deflation is the more likely scenario given how weak the global recovery has been.

Further, there were expectations that the emerging economies particularly China would do its act in rebalancing the global economy. From a consumption driven economy that is the US, the demand was expected to now come from Chinese quarters. That has happened. But obviously it has not been enough to lift the global economy from the slump as Japan's poor growth numbers have amply indicated.

China, meanwhile, has problems of its own. Already talks are emanating of a housing bubble in the dragon nation. This is especially on the back of indiscriminate lending by banks to the real estate market. Moreover, China has been trying to shift its economy from an export oriented one to a domestic consumption one. This will take time. In the meanwhile, dampened demand in the US, Europe and Japan means that Chinese exports will remain under pressure. Thirdly, China's rise has highlighted glaring contradictions. As per reports, the wealth gap between the elite who profited most from three decades of reform and its poor majority is extreme. So much so that China has dozens of billionaires while average income for the rest of its 1.3 bn people is among the world's lowest.

Having said that, the balance of power is certainly shifting. And whatever may be the problems afflicting the emerging economies, they are certainly leaving their mark on the global map.

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Feb 19, 2018 11:53 AM