As a major commodities consumer, China's slowing growth rate will mean lower commodities prices and, by extension, slower worldwide economic growth.
Bob Johnson: This week's chart focuses on China's GDP growth rate, annually, dating back to 1980. What you can see on this chart is that there has been a volatility around a trend. It kind of bottoms out at 6% to 8% growth and peaks at about 14%. Many people would have anticipated that we'd go back to another high peak at some point; but instead, this time around, the economy is continuing to slow. Right now, China is growing at about 7%--not in the 8% to 14% usual bound. And it looks like that's going to continue to slow.
The IMF has their growth rate slowing to 6% by 2018, and Morningstar's research team feels that the growth in China could slow to as low as 3% to 5% by 2020.
Why is this important? China is a major player in the world economy. It's an especially important player to other emerging markets. It's also important to some developed markets, especially Europe. It's less important to the U.S., where it comprises about 1% of our GDP. So, it's not a big deal.
What does make a difference is commodities and commodity prices. There are many commodity categories, including copper, where China represents the majority of the demand for that product. As their growth rate slows and they demand less of that commodity, it brings down commodity prices--one of the factors keeping inflation rates low in the U.S. and around the world. China affects commodity-producing countries, commodity-producing companies, and companies that produce machines that mine those commodities. So, it has a very big knock-on effect in many parts of the economy.
Looking ahead, a slower-growth China means lower commodity prices for some time to come. It also may limit worldwide growth at the same time.
