Australian economy threatened by Chinese slowdown

China slowdown threatens Australia: World Bank

Australia’s economy could be at risk as Europe’s debt crisis threatens China’s export markets, the World Bank says.

The Age,

23 May, 2012

In its twice yearly update of economic forecasts for East Asia, released on Wednesday, the World Bank warns growth across the region is expected to slow to 7.6 per cent in 2012, down from 8.2 per cent in 2011 and nearly 10 per cent in 2010.

China, Australia’s biggest trading partner, is expected to see economic growth slow to 8.2 per cent in 2012, down from 9.2 per cent, before lifting slightly to 8.6 per cent next year.

Even with the anticipated slowdown, the region is expected to dramatically outperform the rest of the world, which is forecast to grow by just 2.6 per cent this year.

However, the World Bank warns China’s economy could slow more quickly if Europe’s sovereign debt crisis worsens.

If that happens, it warns, commodity exporting nations that have reaped the benefits of China’s boom, like Australia, could struggle.

‘‘Commodity exporters, many of which experienced strong growth in 2011, may be particularly vulnerable to a faster slowdown in China,’’ the World Bank said in its East Asia and Pacific Update.

‘‘A quicker-than-anticipated slowing of the Chinese economy could trigger an unexpected drop in commodity prices, which could force some commodity exporters to adjust rapidly.’’

The report said a slowdown in Europe, where countries are struggling with crippling debts and Greece is at risk of leaving the eurozone, would hit East Asian economies by reducing demand for exports and reduced liquidity in financial markets.

However, it said, rising domestic demand and strong government balance sheets meant most countries in the region were well-positioned to weather renewed market volatility.