Should You Be Worried about China’s Economic Slowdown?Kevin Douglas
For the last few months, China has been undergoing what experts are calling an “economic slowdown.” The second quarter of 2016 saw only a 6.7% growth—the slowest rate for the country since 2009, during the depths of the global financial crisis.
What does that have to do with us? Why should we be worried about what happens to China’s economy? Because the effects are spreading, and now American companies are suffering the ill effects of the economic slowdown as well.
A Ripple Effect
A lot of U.S. corporations do business in and with China, to varying degrees. So when the Chinese economy suffers, those companies can be expected to experience slowdowns as well. This has already been seen to some extent, as large corporations such as Wal-Mart and Ford Motor Co. have been forced to alter their plans for business in China in response to the bleaker economic outlook.
To get a better idea of the situation American organizations face currently, nonprofit group The US-China Business Council conducted a survey of its members and their reactions in the wake of China’s decline. 35% of companies surveyed reported that their profitability is down in China over the last year. 17% said that they expected profits to drop even further, and 20% said they had plans to make staff cuts in China as a result of the current economic climate.
What This Means for You
Even looking at the effect China’s economic slowdown is having on the U.S.; it can still be hard to fully grasp its significance. After all, their economy is still growing, albeit at a slower pace. Likewise, American companies doing business there are still turning a profit, just not quite as high. In fact, China’s 6.7% growth, although its lowest in seven years, was still slightly higher than projections. In light of this, a number of experts are admonishing us not to worry about the situation too much.
But what happens in the long term if these trends continue? China is a major source of income for many American businesses, and if it can no longer be relied on, then we can expect to see our economy slip into a slowdown as well, as more and more companies are affected by this financial turmoil.
In addition, China’s currency, the yuan, has been weakening as well, which has been causing economic upheaval all around the world, including in the United States. That instability is only expected to spread as the International Monetary Fund prepares to add the yuan to their Special Drawing Rights at the end of this month.
What this means for you is, if you’re saving for retirement it’s likely that your investments will be impacted, and if this slowdown continues they could take an even bigger hit in the long term. As profits decline, you’ll find yourself unable to save as much as you had anticipated. Your portfolio doesn’t grow the way it should, and even diminishes as the economic outlook worsens. When it finally comes time for you to retire, you may find that you don’t have enough to see you through.
In these troubled and volatile economic times, it’s important to have a backup plan. The markets are unstable and unreliable. If you want to build up a nest egg for your retirement, you need an investment that will maintain its buying power over time, rather than being subject to the fickleness of the global economy. Find a safe haven asset that can help you protect your retirement fund, so that no matter how unstable either China’s or the U.S.’s financial state becomes, yours remains secure.