Debt and Chinese slowdown threaten economy

“There was a synchronised upturn in the global economy in 2003 and into the start of this year. However, going into 2005 there is a danger of a synchronised downturn,” says Hensman. “There are a number of risks in the global economy, including what is happening in the housing market in the UK. It is all a question of what impact the rise in interest rates to 4.75% will have.

“The bigger problem is what will happen to the US consumer, whose spending has kept the domestic and global economy going. The concern is that jobs are not being created and workers are not enjoying wage rises.”

Hensman says he cannot see corporate expenditure compensating for a slowdown in US consumer spending as rates rise. He adds this does not even take into account the effect of the oil price, which hit $53 a barrel last week.

The other concern for Hensman is events in China; he says growth of only 6% in China would hit the global economy: “There are indications that the economic slowdown has started already. Money supply growth last year was an annualised 25%, but the latest figure showed it had fallen to 4%. On a year-on-year basis, it is 14%.”