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China alone cannot save world from Brexit downturn, says Chinese Premier Li Keqiang

Li said countries should work together on economic policies in the wake of the Brexit vote

Zlata Rodionova

Friday 22 July 2016 15:22 BST

(Getty)

The world should not rely on China to save it from an economic downturn following UK’s vote to leave the EU, Chinese Premier Li Keqiang said on Friday.

His remarks came after a meeting with six global trade and finance leaders including World Bank president Jim Yong-kim, International Monetary Fund (IMF) managing director Christine Lagarde, and the Financial Stability Board chairman and Bank of England governor Mark Carney.

Li said that the world economic recovery could not be driven by mainly China.

Countries should work together on economic policies in the wake of the Brexit vote, according to Li.

“Given the financial fluctuations as a result of Brexit, China will advance market-based reform of its exchange rate.

“But it is impossible to carry all of the burden of the whole world on our shoulders,” he said.

“Improving global economic growth would require the world to step up macroeconomic coordination and increase the transparency of macro policies,” Li added.

On Tuesday, the IMF has revised up its forecast of China’s 2016 GDP growth by 0.1 per cent to 6.6 per cent, citing the country’s “recent policy support”, including interest rate cuts, fiscal expansion and rising investment.

At the same time the organisation slashed its forecasts for UK growth, becoming the first official economics body to revise its growth estimates heavily downward in the wake of the shock Brexit vote last month.

The IMF now says it expects the UK GDP to grow by 1.7 per cent this year, down from the 1.9 per cent it forecast in April, and the forecast for 2017 is just 1.3 per cent, down from 2.2 per cent previously.

Li said the IMF’s upward revision of China’s gross domestic product growth had put “pressure” Beijing’s efforts to stabilise the economy.

6 ways Britain leaving the EU will affect you

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1/66 ways Britain leaving the EU will affect you

6 ways Britain leaving the EU will affect you

More expensive foreign holidays

The first practical effect of a vote to Leave is that the pound will be worth less abroad, meaning foreign holidays will cost us more

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6 ways Britain leaving the EU will affect you

No immediate change in immigration status

The Prime Minister will have to address other immediate concerns. He is likely to reassure nationals of other EU countries living in the UK that their status is unchanged. That is what the Leave campaign has said, so, even after the Brexit negotiations are complete, those who are already in the UK would be allowed to stay

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6 ways Britain leaving the EU will affect you

Higher inflation

A lower pound means that imports would become more expensive. This is likely to mean the return of inflation – a phenomenon with which many of us are unfamiliar because prices have been stable for so long, rising at no more than about 2 per cent a year. The effect may probably not be particularly noticeable in the first few months. At first price rises would be confined to imported goods – food and clothes being the most obvious – but inflation has a tendency to spread and to gain its own momentum

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6 ways Britain leaving the EU will affect you

Interest rates might rise

The trouble with inflation is that the Bank of England has a legal obligation to keep it as close to 2 per cent a year as possible. If a fall in the pound threatens to push prices up faster than this, the Bank will raise interest rates. This acts against inflation in three ways. First, it makes the pound more attractive, because deposits in pounds will earn higher interest. Second, it reduces demand by putting up the cost of borrowing, and especially by taking larger mortgage payments out of the economy. Third, it makes it more expensive for businesses to borrow to expand output

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6 ways Britain leaving the EU will affect you

Did somebody say recession?

Mr Carney, the Treasury and a range of international economists have warned about this. Many Leave voters appear not to have believed them, or to think that they are exaggerating small, long-term effects. But there is no doubt that the Leave vote is a negative shock to the economy. This is because it changes expectations about the economy’s future performance. Even though Britain is not actually be leaving the EU for at least two years, companies and investors will start to move money out of Britain, or to scale back plans for expansion, because they are less confident about what would happen after 2018

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6 ways Britain leaving the EU will affect you

And we wouldn’t even get our money back

All this will be happening while the Prime Minister, whoever he or she is, is negotiating the terms of our future access to the EU single market. In the meantime, our trade with the EU would be unaffected, except that companies elsewhere in the EU may be less interested in buying from us or selling to us, expecting tariff barriers to go up in two years’ time. Whoever the Chancellor is, he or she may feel the need to bring in a new Budget

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His comments came ahead of a meeting of G20 finance ministers and central bank governors in China this weekend.

The Brexit shock has given the economy “a good kicking”, according to a special set of surveys of businesses taken in the wake of the European Union referendum vote, which suggest the UK economy is now contracting at its steepest pace since the last recession in early 2009.

The “dramatic deterioration” will significantly increase the odds of a major monetary stimulus from the Bank of England next month to support the economy.

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