Largest Risk To Global Stability May Be China Growth

China’s economic growth is considered by many analysts to be the engine for global GDP improvement. Experts expect China, with its GDP ranked No.2 in the world at close to $5 trillion, will grow well over 10% this year. A sharp deceleration of that increase could be as big as any other threat to world stability.

The World Economic Forum is out with its report on the most substantial global risks in 2010.

The top of the list includes a fiscal crisis brought on by sovereign debt growth, a collapse in asset prices, chronic diseases, and a case in which China’s GDP improvement moves below 6%. The report says it is critical that China not rely too much on leverage to help increase economic activity and that it must increase consumer demand to offset a drop in exports.

China  seems to be at the center of every discussion of the world’s economy and that may be a mistake. The GDP of the EU is about $19 billion, and US GDP is more than $14 billion. The economies in these regions may not be growing as quickly as China’s, but the are massive enough to dwarf the activity of the world’s most populus nation.

It is an unpopular point of view, but the global economy may still rely on consumer spending in the US and EU much more than any other single reason. It is not clear that stimulus packages in these nations will take hold, but if they do, the GDP improvement in the US and EU could be at least $1 billion this year and more in 2011 if a modest recovery can be sustained.

The Global Economic Forum is following form as it places too little emphasis on two regions, the US and EU, which have combined GDP of $32 billion more than five times China’s.

Douglas A. McIntyre