Slowdown In China's Economy Likely To Affect Its Trading Partners

Since China is the world’s largest trading nation, a slowdown in its economy is likely to affect its trading partners. Certain Asian nations like Taiwan, Malaysia, Korea and Thailand and African countries such as Congo, Zambia, Angola and Gabon are likely to be more vulnerable due to their significant exposure to China, CareEdge Ratings has said.

According to the latest projections from the International Monetary Fund (IMF), China’s gross domestic product (GDP) is expected to grow from three per cent in 2022 to five per cent in 2023, benefiting from favourable base effects, and thereafter slow to 4.2 per cent in 2024.

"The impact of a slowdown in China on global economic growth is expected to be limited," it added. The IMF has recently revised its 2023 global growth forecasts upward. The expected global GDP growth for 2023 is now three per cent, which is 20 basis points higher than its earlier estimate. 

The resilient US economy is anticipated to offset any potential slowdown stemming from China.

Notably, China significantly influences global commodity markets, consuming about 60 per cent of global iron ore, 55 per cent of global aluminium, 30 per cent of global cotton and approximately 18 per cent of global crude oil. 

While China’s slowdown is weighing on market sentiment, other demand-supply factors, including global monetary tightening, supply chain stabilisation and production cuts (as in the case of crude oil), are also playing an instrumental role in shaping the commodity prices. 

Overall, the Bloomberg Commodity Index has declined approximately six per cent YTD in 2023.

The report also stated that the ongoing crisis is poised to transform China’s economic landscape, as government actions aim to bring the real estate sector to a more sustainable size. 

"Speculative demand, which has been a key driver of China’s property market expansion, is expected to diminish as, over the past three years, the government has been vocal about its intention to control housing prices," it mentioned.