Jeremy Warner: Don't count on China to act as the locomotive


Outlook As expected, the big emerging- market economies of Asia are proving more resilient to the global recession than the advanced, industrialised economies of the West and Japan. But can that resilience lift the rest of the world out of its funk? This seems rather less likely.

China's first-quarter growth, announced yesterday, was the weakest on record, but at 6.1 per cent, with the pace of growth apparently picking up sharply in March, it was a good deal better than might be expected given the collapse in trade that the period encompassed.

The pronounced fiscal stimulus announced by China in response to the global slowdown seems to be working. China has also encouraged its banks, which have remained largely immune to the crisis that has engulfed their Western counterparts, to go on a massive lending spree. As a result, money supply has been growing like topsy.

The bamboo shoots seem to be sprouting afresh, but don't expect them to have too much of an impact back here in Europe. Combined, the Chinese and Indian economies account for no more than 20 per cent of global output, and even that may be an overestimate. The data is far from trustworthy. What's more, neither of them are big consumers of other countries' goods. Subsistence agriculture still accounts for a fair old chunk of both these economies.

The impact of any uptick in growth on Western nations is therefore likely to be limited. That's not to say there aren't a few green shoots poking their way through the frozen soil back here in the West, but to the extent that they are, it has very little to do with what's happening in China and India. Rather, it is to do with all the policy action taken closer to home.

Plenty of evidence has emerged in recent weeks to support the view that the pace of the downturn is at least now slowing. But any hope of a swift bounce back can be quickly dismissed. Research by Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University shows that the average of the downturn resulting from each of the big banking crises of the postwar period was 2 per cent. Typically, it would take two years for the economies affected to return to trend growth.

But in the five most serious cases, the average peak-to-trough contraction was more like 5 per cent, with growth still well below normal even after three years. The present banking crisis is plainly in a league all of its own, so, if past experience is anything to go by, you would expect the fallout to be worse. We are not even a year into the downturn yet. Nor in Britain have we yet seen a 5 per cent contraction. Precedent suggests we've still got a way to go.

A former Tory chancellor, Norman Lamont, was universally ridiculed when he claimed to have detected the "green shoots of economic recovery" in the midst of the recession of the early 1990s. At the time, his comments seemed ridiculous, even though he did qualify them by saying they were not bushes that he was seeing. As it later transpired, Mr Lamont was broadly right. Subsequent data confirmed that the economy was indeed growing afresh when he made his remarks.

Yet today the expression "green shoots" is thrown around like confetti, though its use is almost certainly even more premature than when Mr Lamont coined the term. What people seem to mean by it is less that the economy is about to start growing again than that the contraction is slowing. In any case, the British economy is unlikely to show any resumption of growth until the end of this year at the earliest, and even then it may not be pronounced.

The V-shaped recovery that everyone hopes for shouldn't altogether be discounted. The "bounce-back" school of thought has a big and growing following. But after the worst banking crisis since the Great Depression, with a major workout of burgeoning public debt still to come, it doesn't look the way to bet. A slow and gradual recovery seems more likely.

PROMOTED VIDEO
Arts and Entertainment
tv
Sport
Ojo Onaolapo celebrates winning the bronze medal
commonwealth games
Arts and Entertainment
Rock band Led Zeppelin in the early 1970s
musicLed Zeppelin to release alternative Stairway To Heaven after 43 years
Arts and Entertainment
Tracey Emin's 'My Bed' is returning to the Tate more than 15 years after it first caused shockwaves at the gallery
artTracey Emin's bed returns to the Tate after record sale
Environment
Neil Young performing at Hyde Park, London, earlier this month
environment
News
i100
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Prince Harry is clearing enjoying the Commonwealth Games judging by this photo
people(a real one this time)
Sport
Lionel Messi looks on at the end of the final
football
Extras
indybest
News
Richard Norris in GQ
mediaGQ features photo shoot with man who underwent full face transplant
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Project Manager (HR)- Bristol - Upto £400 p/day

£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...

Graduate / Trainee Recruitment Consultant - IT

£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...

HR Business Partner - Banking Finance - Brentwood - £45K

£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...

PA / Team Secretary - Wimbledon

£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments