China 'to drive recovery' with technology as West falters

Technology played a role in the wave of recession that hit the world last year and is helping China accelerate out of the downturn, while European economies will struggle to find business sectors that will reverse growth in unemployment, according to a senior economist at the GSA and IET International Semiconductor Forum on Tuesday.

Julian Callow, chief European economist at Barclays Capital, said the current recession is unusual in the way it was synchronised globally. “Technology has played an important role here. The fact that information has never been cheaper and so readily available has contributed to the extent of the downturn. Never before has there been a recession where everybody has known how bad things are.”

Although the recession is severe, Barclays is taking the view that so much stimulus has been applied by central banks that a ‘double dip’ recession, caused by a shift from spending to saving in the US, is unlikely.

“We have ultra-low interest rates. They are important in determining whether people save or spend,” said Callow. “At the global level, there are some reasons in general for optimism. Stimulus is having a real impact on the financial markets. But we will be looking to Asia as a motor for growth.”

Callow added that the threat of a second recession is worrying: “With a second dip, the consequences for the financial sector, unemployment and budgets are severe. They are almost impossible to comprehend. Let’s hope that we don’t see it develop.

“The risk of a double dip is there and some people have it as a baseline in their models. It is worth factoring in as part of a risk assessment.”

China and other eastern economies are set to benefit as the recession comes to an end. “It is extraordinary how investment continues to grow in China,” said Callow, pointing to more than $1tr being pumped into the economy. “It is more than the US, Europe and Japan put together.

“We can now regard China as the key driver of economic expansion in the world. And there is particularly strong growth in the electronics sector.”

One major problem for western economies lies in their exchange rates with the Chinese yuan, which remains comparatively weak.

“We still need a realignment of the currencies,” said Callow. “My fundamental argument is that the Chinese currency does need to appreciate. China has seen an improvement in competitiveness that is not reflected in the currency. But the currency is subject to intervention in China.”

The euro should also fall, he remarked, to restore competiveness.

Without a fall in the euro, the European Union countries will see even more problems. At best, the recovery will be sluggish. “It won’t resemble the lost decade of the Japanese experience but it will be a struggle.”

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