Schroders Economic Infographic Oct 2015
Impact of China on the rest of the world
If China crashes...
Confidence in the Chinese
authorities shaken by events
in August
Markets
shocked by
surprise CNY
devaluation
Sharp fall
in Shanghai
equity
market
Effects already
being felt in
the steel
industry
With interest
rates close
to zero...
...central bank
are not well
placed to react
to the shocks
Europe’s refugee crisis
Syria
543,575* first time
asylum applications
from January - August
2015
Europe’s surge in
refugees has been
exacerbated by the
civil war in Syria
German chancellor
criticised for welcoming
migrants and reducing
border controls
Emerging markets
suffer more than
developed markets
Brazil, Russia
Investment cutbacks lead
to a reduction in growth
Japan and Germany
Most vulnerable of the
developed markets, due to
close trade links with China
France, UK, US
Less impact across
strong economies
Schroders view
• Risk of a hard landing has risen
• As China continues to struggle, we expect
a gradual slowdown rather than a collapse
The Fed rate path
US Federal Reserve kept interest rates on hold
in September
The Fed said it wanted to see a further improvement in the labour market
before being confident that inflation would return to its 2% target
= a 71%
on the same period
a year earlier
Europe
Proposed quota system
has caused infighting
between EU member
states
The effect of immigration influx:
Short-term: positive
Fiscal boost means migrant spending
increases growth
Medium-term: also positive
If migrants can find work, this will help to ease
Europe’s demographic challenge
%
Global headwinds
trouble the Fed
- China risks
- Weak commodity prices
- Strong US $
Schroders view
The Fed looks to
overheat the job market
in the hope that inflation
will return to target
Fed chair Yellen expects
to raise rates this year
but, with China and EM
struggling, this is unlikely
• Expect the US interest rate to rise for the first
time in March 2016
• Expect interest rates to reach 1% by the end
of 2016, lower than the previous estimate of 2%
Will the foreign exchange fall save the emerging markets?
Emerging market trade
and currencies have suffered
a lot over the past year
Trade performance is
undoubtedly poor, but it
is not a cause for panic
Currency depreciation is
proving much less of a boost
to exports than in the past
A trade revival rests more on
a revival in global growth than
on further depreciation, which
also carries risk
*According to Eurostat estimates
Source: Schroders as at October 2015.
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