China Economy News: China’s slowdown raises questions for global economy
Difficulties in China’s real estate sector triggered by the setbacks of giant Evergrande could pose risks to the global economy and affect the United States, the Federal Reserve warned in its report on financial stability published on 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 troubles.
Evergrande, whose value is estimated at some 260 billion euros, is one of the largest Chinese companies. Its financial situation is closely scrutinized because its bankruptcy would deal a serious blow to the growth of the Asian giant.
The real estate sector is estimated to account for 25-30% of China’s GDP. In the third quarter, gross domestic product, penalized by the Evergrande crisis, increased by 4.9% year on year, against 7.9% in the second quarter.
“So far, the Evergrande debacle has been contained by Chinese official sector buffering,” said Padhraic Garvey, regional research manager for the Americas at financial institution ING.
But he admitted there were “unknown risks”.
And he added that the Fed could not ignore the fact that “China is an important factor given its size and the size of its financial sector.”
In October, the International Monetary Fund revised its expansion forecast for China down to 8%, down 0.1%.
Its chief economist Gita Gopinath stressed that the institution “pays very close attention” to the evolution of the Evergrande crisis.
“Our view is that the [Chinese] the government has the resources and the capacity to contain the problem, which means that even if we will see an upheaval occur in the real estate sector, it will be contained and will not spread more widely “to the Chinese economy”, said Gopinath at 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 second world economy had been anticipated by many economists while the Chinese government, anxious to reduce the debt, slows down investments by local authorities 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 US research group estimates that China’s economy will settle into a “long soft fall” trajectory over the next decade.
Still, “China’s economic slowdown represents a sort of shutdown of the engines of the global economy,” said Gregory Daco of Oxford Economics.
However, he noted that “the momentum still remains favorable at 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 that helped avoid a sharp third-quarter slowdown in the global economy,” and that effect will likely continue through the end of the year, Daco said. .
In the longer term, the inevitable slowdown in Chinese growth, also linked to the aging of its population, will lead to a reorganization of the regional economies.
Countries currently very dependent on China such as Indonesia, Vietnam or Thailand should occupy a more important place in the world economy, just like India already.
As for Latin America, “everything will depend on political stability,” Daco said.