Yahoo Finance Carney puts Brexit fears on pause to sound China warning
Forget about Brexit for a second. Let’s look at China.
Mark Carney, the head of the Bank of England, warned about the massive risks posed by a Chinese economic slowdown during a public speech in London on Tuesday.
Carney focused particular attention on the huge growth of debt in the country, noting that ballooning debt loads in China were similar to what happened in the US ahead of the credit crisis and financial meltdown. He said past examples show that big increases in debt can lead to deep slowdowns later on.
“China is the one major economy in which all major financial imbalances have materially worsened,” Carnet said, according to his prepared speech. “A downturn in the Chinese economy would test the resilience elsewhere.”
The Bank of England estimates that a 3% drop in the Chinese economy would subtract 1% off the global economy, including 0.5% off the economies of the UK, the US, and the eurozone.
China reported its slowest economic growth in nearly 30 years last month, with official figures showing that gross domestic product (GDP) in the country grew by 6.6% in 2018.
This slowdown and trade stand-off with the US has had negative knock-on effects on companies with large operations in China, including luxury-goods companies and car makers such as Jaguar Land Rover.
Brexit risks remain
Brexit still featured in Carney’s speech as the central bank head warned again about the risks associated with a no-deal Brexit.
He said Brexit uncertainty ahead of the March deadline was already being felt in the economy.
‘With fundamental uncertainty about future market access, UK investment hasn’t grown since the referendum [on Brexit] was called and has dramatically underperformed both history and its peers,” Carney said.
The central bank warned last year that the country could be headed for an economic shock more severe than the global financial crisis if prime minister Theresa May’s government is unable to finalise a Brexit deal by the 29 March deadline.