World Economy

‘Chinese Shock’ Would Suppress Global Trade

‘Chinese Shock’ Would Suppress Global Trade‘Chinese Shock’ Would Suppress Global Trade

A sharp slowdown in China’s economy to a 2.3% growth rate in the next three years would have “significant knock-on effects” across emerging markets and corporate credit quality worldwide, according to Fitch Ratings.

Such a slowdown–to one-third of the 6.9% growth pace economists project for this year–also would disrupt global trade, hinder growth and potentially suppress borrowing costs for several years, Fitch analysts led by William Warlick wrote in a report, Bloomberg said.

“A greater-than-expected deceleration in Chinese economic activity would have far-reaching implications for global growth, corporate credit quality and monetary policy,” the researchers said. “Lower-for-longer in terms of growth, interest rates and commodity prices could be the defining mantra of this decade for the major advanced economies if a Chinese shock scenario materializes.”

Policymakers in Beijing have already cut interest rates six times to a record low and expanded fiscal stimulus in the world’s second-largest economy as it heads for the weakest expansion in a quarter century. Full-year gross domestic product growth is expected to slow to 6.5% next year and 6.3% in 2017, according to economist estimates compiled by Bloomberg.

Fitch said its hypothetical scenario is designed to test credit connections between China and the rest of the world and doesn’t reflect its expectation for Chinese growth. Fitch’s so-called base case estimate calls for a 6% expansion in 2017, the report said.

Should such a sharp slowdown scenario play out, global GDP growth would decline to 1.8% in 2017, Fitch said, and “as a result, any rise in US and eurozone short-term interest rates would be postponed, and oil prices would remain under pressure.”