Chinese slowdown casts shadow over the world economy

China’s slowdown has cast a shadow over Europe and Asia, sparking questions over Beijing’s ability to avoid a hard landing that would wreak havoc on the world economy, analysts say.

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

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.

“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.”

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

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 re-balancing 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. 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,” Cotton said.

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.

China is vital for the smooth functioning of global economies because the Asian powerhouse nation is a major consumer of commodities, like crude oil, steel, and copper, and of manufactured products like cars and airplanes.

At the same time, China is also widely regarded as the workshop of the world, and its vast factories benefit from low labour costs and high volume production.

But the International Monetary Fund cut its global economic growth forecast last week, citing the increased “possibility of a longer growth slowdown” in emerging market economies like China.

But due to the poor quality of Chinese economic data and lack of information about risks in the Chinese banking sector, “it is difficult to gauge with any confidence the probability of that happening,” he said.