What the global stock market turbulence really means for you
The world economy is now more interlinked than ever before – a monetary policy change in one country could lead to inflation in another. Most recently, China’s economic slowdown has affected global stock markets. This has gone on to devalue emerging market currencies and prices of major commodities like oil. But how exactly will this impact you? And crucially, for how long?
Markets in context
This stock market turbulence is a reflection of uncertainty – investors are worried that the Chinese economy is in a worse state than previously thought. This matters because its weakness might hurt economies elsewhere, especially in countries with growth models that rely heavily on Chinese demand.
As the world’s second largest economy, China produces 15% of global GDP but drives 25% of global GDP growth. Its manufacturing industry is a huge consumer of raw materials, particularly oil, which is why commodity prices are also falling. If your country is a net exporter of oil, this could lead to significant revenue shortfalls. This could mean decreased government spending on things like affordable housing or health care. However, consumers in oil-importing countries are likely to experience an increase in disposable income, as fuel and energy costs fall.
Currency costs
The yuan’s recent devaluation – reportedly in a bid to stimulate Chinese exports – has since wiped off more than $5tn in global stock prices. European luxury goods stocks and car makers have been hit, as their exports are now more costly for Chinese consumers given the weaker yuan. If your country is a heavy importer of Chinese goods, this could mean falling prices as Chinese imports become cheaper. However, your central bank could also engineer a currency devaluation to stay competitive in the import-export market. The value of your currency would then fall, resulting in higher import prices and consequently, more expensive goods and services for you.
Will the turbulence be long-term?
If the stagnation spreads, there is a risk of a broader, global economic slowdown and in an extreme situation, a crisis. The question to ask is this: are recent market movements just a correction reflecting China’s shift to slower growth, or does it show a Chinese economy entering recession? We'll be keeping you updated on any further developments.
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