Turmoil in China Hits Global Economy

Published Date : Aug 25, 2015

Economic turmoil, initially originating from China, seems to affect the globe. This week started on a worried note regarding the strength of the global economy as the stock market in China crashed, creating ripples across the markets in other countries. As the value of shares in Shanghai plunged, some of the markets registered their largest one-week losses since 2008. Though the analysts have pointed out that there would not be a repeat of the stock market crashes of 1997 or 2008 owing to the reforms in place, they have warned that the continued bleak picture of the Chinese economy would invariable affect the global markets, especially the emerging economies. 

With a dip of 8.5% in the value of stocks in Shanghai, the investors started selling off stocks across all markets on Monday. The Chinese stock market crash erased any profits earned in the U.S. or the European exchanges. However, the worst hit were the markets in the emerging economies. This reminds of the 1997 financial crisis when the emerging countries in South East Asia had sought bail out from the International Monetary Fund. At that time, the Chinese economy was stable. This time, it has become the epicentre of turmoil. 

Beijing has failed in its efforts to stabilize the capital markets in China. Unexpected devaluation of yuan has added to the problem. Economists have revealed their worries about the inability of the Chinese authorities to manage the economic crisis in the country. Last month, the IMF already moderated its growth forecast for the year to 3.3% owing to the worrying economic scenario in China and other emerging countries. Economists have forecasted that interventions from the global authorities and central banks across nations would help in averting another financial crisis.