U.K. and Chinese Economies Fall Apart

The Chines and U.K. economies could hardly be more different. With capital cities over 5,000 miles apart, England remains the leading example of the old financial world, and China holds its position at the top economy among those which have risen rapidly with Asia. Yet, both countries posted awful economic numbers.

U.K. audit firm BDO LLP reported that business confidence in that country has fallen to a 20-year low. According to their analysis:

BDO’s Optimism Index, which predicts business performance two quarters ahead, suggests the economy will continue to contract at the start of 2013. The index fell to 89.1 in August from 93.1 in July. This is the sixth consecutive month that the data has registered a drop, with a four-point plunge from 93.1 in July. Business confidence is now at its lowest level since the Business Trends indices began in 1992, and significantly below the crucial 95 mark which would indicate a return to growth.

BDO’s Output Index — which predicts short-run turnover expectations — has also fallen sharply, from to 90.8 in August from 93.9 in July, reaching its lowest point for 40 months. This drop neutralises hopes of recovery in the short-term. This is crystallised by data from the UK’s all important service sector — which makes up more than three-quarters of the UK’s economy — which registered a steep drop over the last month, to 92.2 in August from 95.1 in July.

The U.K. economy has slipped toward recession, if it is not there already. The problem has become severe for the government of David Cameron. Like many other world leaders, he finds himself working a balancing act between stimulus and austerity in an effort to restart the nation’s economy.

China’s problems are different but just as severe. The National Bureau of Statistics reported that production rose only 8.9% last quarter, a three-year low. Shortly afterward, the People’s Republic said imports fell 2.6% in August, which may be the most significant signal of China’s sharply slowing economy. Both businesses and individuals, it seems, have lost their economic appetites.

While the U.K. economy has its strongest foundation in finance and oil exports, China’s is rooted in its massive factory production. And the efficiencies and consumer activity of the two nations could hardly be more different. Gross domestic product per capita in China is $8,500. In the United Kingdom, it is $36,600. While China’s economy has grown rapidly over recent decades, the U.K.’s by comparison hardly has.

The fact that these two disparate economies are faltering is a sure sign that the global slowdown, which continues to move toward a global recession, has spread far and wide.

Douglas A. McIntyre