Chinese slowdown casts shadow over world economy

LONDON: China's slowdown cast a shadow over Europe and Asia on Tuesday, sparking questions over Beijing's ability to avoid a hard landing that would wreak havoc on the world economy, analysts said.

The nation's powerhouse economy slowed to 7.5-per cent growth in the second quarter, down from 7.7 per cent in the previous three months, official data showed Monday.

"China is a key downside risk to the global economy. Recent data does suggest that the economy is sluggish," VTB Capital economist Neil MacKinnon told AFP.

"In addition, the authorities are concerned about the rapid rate of credit expansion and the impact it might have on inflation. This rules out any near-term monetary or fiscal stimulus."

New evidence emerged Tuesday of the impact of slowing Chinese growth in Europe, which is still struggling to recover from the eurozone's long-running sovereign debt crisis.

Investors in Germany, Europe's biggest economy, turned gloomy this month on fears over falling exports to China, in a stark illustration of the new globalised power of the Asian nation's industry and consumers.

Germany's investor confidence index, calculated by ZEW economic institute, fell by 2.2 points to 36.3 points in July. That disappointed analysts' forecasts for an increase to 40 points.

'Dark clouds' from the East

"New dark clouds have started to black out growth prospects of the German economy," said ING DiBa economist Carsten Brzeski.

"These clouds are not coming from the South but from the East. The stuttering and now slowing Chinese economy is a clear cause of concern (and) could become a new risk factor for the German economic outlook."

China is now the fifth most important single export market for German companies and accounts for some six per cent of total exports.

The Asian Development Bank meanwhile warned Tuesday that China's slowing growth was weakening momentum and trimmed its outlook for developing Asia this year to 6.3 per cent, from 6.6 per cent.

The sluggishness comes as "China is attempting to rebalance its economy away from investment towards a more consumer-driven economy," said Currencies Direct analyst Alistair Cotton.

But this rebalancing would present growth opportunities for the West, he noted.

"The big winners, should they crack the market, will be consumer companies with strong brand identity," he said.

"The losers are likely to be the countries supplying the raw materials for Chinese investment, conversely the ones that were doing so well in the last decade."

Daiwa Capital Markets economist Chris Scicluna added that markets were eager to see an "orderly" Chinese slowdown that would not disrupt the world economy.

"China's support for global demand has been welcome over the past couple of years as the West has had to work off the excesses of the pre-Lehman era," Scicluna told AFP, in reference to US bank Lehman Brothers whose collapse in 2008 triggered a global slump.

"A slowing of China's growth, over the medium term, to a sub-7.0-per cent rate was always inevitable as the economy matured.

Source: http://economictimes.indiatimes.com/news/international-business/chinese-slowdown-casts-shadow-over-world-economy/articleshow/21109750.cms

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