China Economy News: China’s slowdown raises questions for the global economy

The Chinese economy, weighed down by power shortages and a vast housing crisis, has lost its luster in recent times, to the point that economists are beginning to question its impact on the global growth it is helping to drive. For more than 20 years.

The difficulties of the real estate sector in China triggered by the woes of the giant Evergrande could pose risks to the world economy and affect the United States, the Federal Reserve warned in its report on financial stability released Monday.

It’s a marked change in tone from September, when Fed Chairman Jerome Powell still believed the world’s largest economy wasn’t really directly exposed to China’s struggles.

Evergrande, estimated at some 260 billion euros, is one of the largest companies in China. Its financial situation is closely scrutinized because its collapse would deal a serious blow to the growth of the Asian giant.

The real estate sector is estimated to represent 25-30% of Chinese GDP. In the third quarter, the gross domestic product, penalized by the crisis of Evergrande, increased by 4.9% year on year, against 7.9% in the second quarter.

“Until now, the Evergrande debacle has been contained by the official Chinese sector buffer,” said Padhraic Garvey, regional research manager for the Americas at the financial institution ING.

But he admitted there were “unknown risks”.

And he said the Fed couldn’t ignore the fact that “China is a high profile factor given its size and the size of its financial sector.”

In October, the International Monetary Fund downgraded its expansion forecast for China to eight percent, down 0.1 percent.

Its chief economist Gita Gopinath underlined that the institution “pays very close attention” to the developments of the Evergrande crisis.

“Our point of view is that the [Chinese] the government has the resources and the capacity to contain the problem, which means that while we will see a disruption happening in the real estate sector, it will be contained and not impact more widely “on the Chinese economy, said Gopinath on CBS news.

The IMF expects global GDP to grow 5.9% this year from 6% in July.

Beyond the real estate crisis, a slowdown in the world’s second-largest economy had been anticipated by many economists as the Chinese government, anxious to deleverage, slows down investments by local communities and tightens the conditions for bank loans.

China is expected to average about 3.5% growth over the next decade, about half the growth rate of the 2010s, according to Conference Board projections released last week.

The American research group estimates that the Chinese economy will settle on a “long and soft” trajectory over the next decade.

Still, “the economic slowdown in China represents a kind of extinction of the engines of the world economy,” said Gregory Daco of Oxford Economics.

However, he noted that “the dynamics are still favorable for the moment”, especially as the slowdown in China is partly offset by “relatively robust growth in the United States” and in Europe.

“We are seeing a kind of pendulum effect which has prevented a sharp third quarter slowdown in the world economy,” and this effect will no doubt continue until the end of the year, said Daco. .

In the longer term, the inevitable slowdown in Chinese growth, which is also linked to the aging of its population, will lead to a reshuffle of regional economies.

Countries currently very dependent on China such as Indonesia, Vietnam or Thailand should occupy a more important place in the world economy, as India already is.

As for Latin America, “everything will depend on political stability,” Daco said.


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