A record trade deficit for Japan during the month of July has brought fresh focus on the dire state of the global economy.
While a trade deficit was expected, the fact it came in at double the forecasts has led some analysts to question whether risks to the global economy are translating into a sharper downturn.
China’s economic growth has proven remarkably resilient and has been one of the bright spots in the world, but there are now fears of an economic slowdown, as the European woes and persistent sluggish US growth finally starts to weigh on China.
One of the key industries in China’s growth, and one that is important to Australia’s growth, is the steel industry and there have been reports of price falls and falling demand for steel, particularly as infrastructure construction slows due to a reduction in government funding for such projects.
Output from China’s steel mills has yet to decline but there is an expectation that will happen in coming months.
If China slows more than anticipated, this will have flow-on impacts for commodity exporting countries including Australia, Canada and Brazil, among others.
On the positive side, the slowdown in China has been expected for some time as the nation transitions from export-led growth to increasing domestic demand.
At this stage, there are few if any forecasts of a more severe downturn in China, as there are expectations that the nation’s leadership will find ways to avert such an outcome, particularly out of fear that it may undermine the holy grail of social stability.
The bigger issue that confronts many policy makers is how to reinvigorate the global economy.
A solution to Europe’s ongoing financial and economic crisis has proven elusive, despite the attention of some of the finest economic minds in the world.
The uncertainty about Europe has not been helped in recent days by the increasing conjecture about a possible break-up of the European Union.
Finland’s Foreign Minister has said his government is taking precautionary measures to guard against the impact of a Eurozone breakup, while the Austrian government has raised the possibility of legal triggers that would allow individual countries to exit.
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