The World Bank recently reduced its estimates for economic growth worldwide and in the euro zone, and the numbers are pretty dire, as they indicate the potential of a world recession on par with, or even worse than, the economic climate in 2008 after the collapse of Lehman Brothers.
But China’s economy — while not immune to the global financial woes — is expected to hold up pretty well. In fact, it’s expected to keep expanding at a spectacular pace for decades. And in today’s video, I’ll tell you why this matters to you as an investor.
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Hi, this is Tony Sagami for Uncommon Wisdom Daily.
I recently read the World Bank’s latest report on the global economy, and it’s downright alarming. The institution just cut its growth forecasts for both the developed and emerging markets in 2012, and warned that there is a significant chance of a worldwide slowdown.
The World Bank now sees global economic growth of 2.5% this year, and 3.1% in 2013. It previously projected 3.6% growth for both years.
And the outlook for the 17 countries that use the euro currency is even worse. The World Bank is now forecasting a contraction of 3-tenths of a percent in 2012, down from an earlier estimate of 1.8% growth.
But the World Bank didn’t stop there. It said that the downturn in Europe, combined with weaker growth in developing countries, could ultimately cause the global economy to slow by another 4%! That would translate into a major recession — on par with, or even worse than, the economic climate in 2008 after the collapse of Lehman Brothers.
However, the report wasn’t all bad news. The World Bank forecast that China will expand by a very healthy 8.4% this year, and 8.3% next year. Those numbers aren’t quite as strong as the 10.3% and 9.2% growth that China enjoyed in 2009 and 2010, respectively. But it’s still very robust.
Even more impressive, the World Bank expects China to maintain an annual growth rate of 8% for the next two decades! The world hasn’t seen that type of sustained, spectacular growth since the Industrial Revolution!
So how has China managed to avoid that fallout from the European debt crisis that’s threatening the rest of the global economy? The reason is that only 18% of China’s exports go to the European Union.
And even though the euro-zone economy is slowing down, its consumers are still buying Chinese products. In fact, Europe’s imports from China rose by 4.9% in November, and 7.2% in December.
Globally, Chinese exports are growing much more dramatically. They increased by 13.4% in December alone, and by more than 20% for all of 2011. The United States accounts for a big chunk of those numbers: Chinese exports to the U.S. jumped by nearly 17% in November, and nearly 12% in December.
China’s exporting machine has created a huge trade surplus — it widened to $16.5 billion in December. And for all of last year, it was $155 billion. Those numbers tell me that while China is not immune to Europe’s economic woes, it is more resilient than most other countries. In addition, China’s own domestic demand and consumption more than make up for whatever it may lose in exports.
That’s why the World Bank is spot on about the future of China, and it’s why you should make China and its Asian neighbors an important part of your investment strategy for many years to come.
I’m Tony Sagami for Uncommon Wisdom Daily. Thanks for watching.