Sharp China's GDP Slowdown Would Hit Global Growth Hard, Says Fitch

BEIJING (China) Dec 15 (Bernama) -- A sharp slowdown in China's gross domestic product (GDP) to 2.3 per cent during 2016-2018 period would disrupt global trade and hinder growth, with significant knock-on effects for emerging markets and global corporates, according to a study by Fitch Ratings. In turn, this would keep short-term interest rates and commodity prices lower for longer. This hypothetical scenario does not reflect Fitch's expectations for China's growth, but is designed to test credit connections between China and the rest of the world. "China's rapid rise as a global economic power, and its deepening ties to the rest of the world, have forced global credit investors to weigh carefully the potential impact of a sharp China slowdown. "After tracing China's financial and trade links around the world, it's clear that a greater-than-expected deceleration in Chinese economic activity would have far-reaching implications for global growth, corporate credit quality and monetary policy," Fitch's senior director of macro credit research Bill Warlick said. He said this hypothetical China slowdown scenario, framed with the help of the Oxford Economics' Global Economic Model, would slow global GDP growth to 1.8 per cent in 2017 from Oxford's August base case of 3.1 per cent. The focus of impact from a sudden slowdown remains generally unchanged from 2010, when Fitch and Oxford conducted a similar study. "Knock-on effects like anaemic or slowing global consumer demand and commodity supply gluts would persist or worsen," Fitch's Asia-Pacific Corporates managing director Andrew Steel said. Within Fitch's rated portfolio, 25 per cent of oil and gas companies and 52 per cent of other commodities companies are already sub-investment grade. If the scenario materialised, it could create ripple effects through the high yield bond market. Fitch said the impact of a China slowdown would be felt most in emerging markets, particularly in Asia and Latin America, due to the high concentration of China's largest trade partners in these regions. -- BERNAMA