A prolonged slowdown in China may plunge the global economy into a recession, according to Ruchir Sharma, Morgan Stanley Investment Management’s head of emerging markets, in an interview with Bloomberg.
According to Morgan Stanley, the Chinese economy accounted for 38% of the global growth in 2014, rising from 23% in 2010, thus, its influence on the worldwide economy can’t be overlooked nor understated.
The Chinese government is targeting a 7% growth for China this year, the lowest rate in more than two decades, while other economists such as those from the IMF pegged it at 6.8%.
China will probably continue growing at a slower rate, and a two-percentage point slowdown would drag down the global economic growth to less than 2%, already equivalent to a global recession, Bloomberg said.
“The next global recession will be made by China,” Bloomberg quoted Sharma, who manages more than $25 billion, as saying in an interview at Bloomberg’s headquarters in New York. “Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy.”
The Chinese government has adopted a number of measures to bolster its slowing economy including a series of rate cuts, a reduction in the banks’ reserve requirement ratios, pouring more money into infrastructure spending, and solving the debt problems of its local government units so that they could spend more on public works and other investments.
China is battling with a weak property sector, shrinking factory output and rising bad debts as companies find it hard to pay their obligations on time as revenues and profits fall due to a sluggish economy.
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