In the August economic update video for eZonomics, ING head of macroeconomics Maarten Leen answers the question: “What if China slows?”.
Lowest growth rate since 2001?
Leen says ING economists have lowered growth forecasts to 7.5% for China for this year and next – which would be the lowest growth rate since 2001.
“The economies that have the closest economic relations with China will be affected most if growth there slows significantly,” says Leen, highlighting nearby countries in Asia and commodity-producing countries such as Australia and in Latin America.
“But the impact can even hit more distant economies, including Europe.”
China is important to Europe too
Leen says China is the fifth most important single export market for Germany.
And given the importance of the German economy to the Eurozone, “a risk for the German economy might therefore also translate into a risk to the outlook for the Eurozone as a whole”.
Good for borrowers?
Another effect of China slowing could be dampened inflation elsewhere, if dynamics changed in employment markets for Chinese manufacturers.
There could be downward pressure on interest rates and bond yields in developed markets, says Leen, which might help borrowers and others in Europe.