Eurozone Recession Could Cut China’s Growth by 50%

The International Monetary Fund (IMF) said today that a recession in the Eurozone would likely reduce China’s actual growth by about 50 percent of the current projection. That would place China’s growth for 2012 at roughly 4 percent should the Eurozone crisis devolve into a recession.

It is estimated that China needs to maintain yearly expansion in the range of 8 to 10 percent to meet the needs of its emerging workforce. While growth of this magnitude would result in crushing inflation in most economies, China has sufficient capacity to absorb this rate of growth.

This is due to the migration of China’s rural population to the fast-expanding rural centers in search of work. In fact, it was only in this past year that, for the first time in the nation’s long history, China’s urban residents finally outnumbered the rural population.

Still, this is not to say that inflation has not been a concern. In 2011, China’s economy grew by 9.2 percent even after the government acted to ease price inflation. Food staples in particular rose sharply in the past year far outpacing the rate of wage increases. Property values have also climbed forcing the government to implement a series of measures to curb speculation.

Greece Moves Closer to Default

Underscoring today’s IMF’s warning is the latest news indicating that Greece has failed to come to terms with European officials on the implementation of a second emergency funding package. Several deadlines have been missed to reach an agreement but time is becoming an ever-greater concern. Greece has a 14.4 billion euro ($10.9 billion) bond due on March 20th and time is running out to get the funding in place and prevent a default.

The failure to agree on a new debt deal is being blamed on Greece’s inability to get the leaders of the three main political parties to consent to acceptable terms. Still, progress has been made in some areas; the Greek leaders have tentatively agreed to spending cuts equal to 1.5 percent of the countries Gross Domestic Product.
Greece’s hesitance is understandable given the degree of public opposition the proposed spending cuts. The country’s largest public sector unions have already threatened to impose a nation-wide strike expected to bring the country to a virtual stand-still later this week.

Regardless of the public hostility, European leaders are clearly losing patience with the Greek government’s continued foot-dragging. French President Nicolas Sarkozy was quoted as saying that European governments “want this accord” at a press conference in Paris earlier today.

“Greece’s leader have made commitments and they must respect them scrupulously,” warned Sarkozy. “Europe is a place where everyone has their rights and duties. Time is running out, it needs to be concluded, it needs to be signed.”

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.