How a big country effects the UK (Would a Chinese slowdown cause a recession)

Question 1

Facts

Answer 1

Chinese growth slowed from 7.3% in 204 to 6.9% in 2015
UK trade with China is only 4% of our total trade in goods and services
Chinese slowdown might actually increase investment into the UK
Falling world commodity prices are a net benefit to a country such as the UK
We import more from china than export to them - current account deficit with them

Question 2

Direct effects on UK economy

Answer 2

Trade flows to and from China (value of imports/exports)
Investment flows to and from China (FDI, portfolio investment)
Effect on jobs in UK industries, e.g steel
Impact on Sterling-Yuan exchange rate (Yuan worth less, sterling worth more)

Question 3

Indirect effects on UK economy

Answer 3

World commodity prices (price of oil, copper) and global inflation - could tip more countries into deflation
Impact other nations who we might trade with e.g Australia are dependent on Chinese growth, we couldn’t export as much to them if their economy slows down
Threats to globalisation - countries may introduce protectionism - due to Chinese dumping
Increased currency volatility

Question 4

Evaluation - how can we absorb the shock

Answer 4

Monetary policy - Banks of England may cut interest rates from 0.5% or expand quantitative easing
Fiscal policy - Government might allow automatic stabilisers to work - spending increases and taxes reduce - might have to delay balanced budget
UK has flexible labour markets, wages are less rigid than 20 years ago, there are 0 hour contracts which can adapt to changing economic conditions
Flexible product markets - UK exporting businesses could switch their attention to other parts of the world that have higher demand.
Floating exchange rate - pound will depreciate against Yuan - this helped us avoid depression from the world recession in 2009 (but not recession)