The global economic outlook has become bleaker as signs of a deeper downturn in China emerged, coupled with weak growth in Europe and South America, raising fears of another recession in the emerging economies.
Recent reports showed Chinese factory growth was now at its weakest since early 2009, with some analysts expressing concern that many of the country’s trading partners might face a “hard landing” in their economies.
China’s vast factory sector shrank at its fastest rate in 6-1/2-years in September, a private survey showed, sending investors worried about sagging global growth, scurrying out of risky assets.
Beijing’s decision to devalue the yuan last month and weak economic data have sparked fears that the underlying health of the world’s second biggest economy is worse than many had previously thought.
Reacting to the data, Asian stocks posted their biggest single-day fall in a month on September 22.
“There is substantial concern at present that global demand weakness is dampening the economy in the industrial countries,” says Jorg Kramer, chief economist at Commerzbank.
Some economists have already warned that a “hard-landing” for the Chinese economy will likely drag the world into a recession in 2016, where it may remain for the most of 2017.
They argued that a slowdown concentrated in emerging markets would destroy demand and see economic activity fall well below its potential worldwide.
A Chinese slowdown will ring out across the world, denting demand and hurting business sentiment.
Apparently, the Chinese economic malaise weighed heavily on a list of reasons the Federal Reserve had for not raising interest rates in the US, for the first time in almost a decade, at the Fed meeting on September 17.
Sentiment at Asia’s biggest companies tumbled at a record pace in the third quarter on worries about China and the risks it poses to global growth, a survey last week showed.
There are signs dwindling demand from Asia, led by China, is starting to hurt businesses in the eurozone, according to PMI survey compilers Markit.
Private business growth in the currency bloc slowed this month as Asian demand weakened, leading to fewer new jobs and forcing factories to reduce output.
Should growth in China slow further, many other emerging markets could be negatively impacted.
Chinese authorities are, however, targeting a GDP growth of 7% this year, which by the current global standards, is high.
For this reason, many believe China may not have a “hard landing” in its economy, although the country’s growth has considerably slowed down this year, downshifting to a level not seen in some 25 years!
But even a “soft-landing” in the Chinese economy may prove hard for the rest of the world as the global economy is now totally interconnected and dependent on each other.
