- Author: Jeannette E. Warnert
For one, slowdowns are more likely in countries where the manufacturing sector’s share of employment exceeds 20 percent, since it then becomes necessary to shift workers into services, where productivity growth is slower, Eichengren said.
Further, slowdowns come earlier in economies with undervalued currencies. Currency undervaluation, he said, may boost economic growth in the early stages of development, when a country relies on shifting its labor force from agriculture to assembly-based manufacturing. However, it may work less well when growth becomes more innovation-intensive.
“Finally, maintenance of an undervalued currency may cause imbalances and excesses in export-oriented manufacturing to build up, as happened in Korea in the 1990s, and through that channel make a growth deceleration more likely," Eichengren was quoted.
Author of the Pragmatic Capitalism blog, Cullen Roche, concurred with Eichengren's assessment. The Chinese slowdown is not a matter of if, but when, the post concluded.