FX.co ★ China’s economy could plummet to lows of 1990s

China’s economy has been on a roller coaster. In the summer, China impressed market participants with its stunning GDP growth. Now analysts warn that the country is heading for the sharpest contraction in the last 30 years.

China’s economy lost its winning streak in Q3 2021. The annual rate of economic growth slowed down abruptly to 4.9%, the weakest pace since Q3 last year. It is evident that Beijing will hardly soften its rhetoric on the property sector that will put a great strain on the sector for a few years ahead. World’s leading banks such as Goldman Sachs, Nomura, and Barclays downgraded their forecasts of China’s economic growth to 5% and even lower for 2022. If these predictions come true, China’s national output could slump to the worst rates in the last 30 years.

Any serious downturn in China’s economy will immediately make a dent in other countries. Being the second largest global economy, China’s domestic headwinds will inevitably challenge other economies. If the industrial sector in China loses momentum, commodity exporters should be braced for sluggish demand that will erode their revenues. Due to adverse economic conditions, the Chinese will cut their spending. Being the major target audience of transnational corporations, global trade is set to come to a sleeping mode again. Rob Subbaraman, Nomura's chief economist, reckons that a slowdown in China’s economy “can directly reduce world GDP growth by around 0.5 percentage points.”