The big economic news over the last month has been the stock market impact of what has been happening in China. Worries about growth in China and the knock-on impact triggered a global stocks and share sell-off, leading to large percentage falls in the country's main stock exchange. On 24th August (“Black Monday”), the Shanghai Composite lost 8.5% the worst fall since 2007.
Commentators have indicated that after nearly 35 years of spectacular progress, the Chinese economy faces multiple challenges on many fronts which will lead to a “new normal” economic situation. This might mean that there will be significant adjustments involving difficult structural reforms, reallocation of resources and changes to public sector funding. While the “new normal” is complex and will be volatile, China’s fundamentals are still strong.
See this more in depth article by Vivek Tulpule (Head of Economics at Rio Tinto) on the The Telegraph website which helps explain the current and future situation in China.
In the UK market fell by 7% in August to close at 6,248 having briefly dropped below the 6,000 barrier when the chaos in China was at its worst. This was offset by good news, as reported by the Council of Mortgage Lenders, that borrowing was at its highest level since 2008!
More good European news the Bundesbank’s prediction of steady growth in German was confirmed by June figures a record trade surplus of €24bn (up from €16.2bn a year previously and well ahead of market expectations).
But not even the German stock market escaped the impact of China. The index was down 9% to finish August at 10,259: the other major European market, France, fell almost as much, ending the month down 8% at 4,653.
In the USA, a further 215,000 new jobs in July and the US economy grew by far more than had been thought between April and June. The US economy grew at an annualised rate of 3.7% – up from the first estimate of 2.3%, resulting in an immediate rise to both oil and share prices. Still not enough good news to prevent the Dow Jones index falling sharply in the month, down 7% to 16,528 at the end of August.