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China and Emerging Markets - leading the global economy

June 2019

China and the end of the savings glut

The savings glut that gave rise to the 2008 financial crisis is disappearing. China’s outsized contribution to this trend means it could prove transformational for the world’s financial markets.

A more balanced world? For years, developing countries in Asia and oil exporting economies in the Gulf were saving more than they were spending. This imbalance, which former US Federal Reserve chief Ben Bernanke famously described as a “global savings glut”, was blamed for depressing US interest rates and encouraging speculative borrowing -- a contributing factor to the 2008 financial crisis. The glut is fast disappearing. Global savings, as a percentage of GDP, peaked in 2014 and have been shrinking ever since.

At the centre of this trend sits China. Which is why this phenomenon could prove transformational for countries and asset markets far beyond the world’s second largest economy.

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