China a harbinger for global slowdown

Sun Jan 15, 2012 3:02pm EST
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By Emily Kaiser and Stella Dawson

(Reuters) - Walk softly. Global growth looks to be smoothly downshifting as China slows, the U.S. economy firms, and troubled Europe, at least for now, avoids a messy crash.

Ratings downgrades on nine euro zone countries by Standard & Poor's late Friday - including France, Italy and Spain - sent a shiver through financial markets. But the move was long telegraphed, likely limiting any spillover.

A global economy slowing only gently would be an immense relief after a fraught end to 2011, but it is far from guaranteed.

Greek debt talks could collapse next week in a tussle over the size of losses banks should face. Tensions over Iran's nuclear program continue to threaten oil markets. And U.S. data last week showed surprisingly weak retail sales and a rise in jobless claims, a reminder that the U.S. recovery is not yet out of the woods.

So, even as signs suggest only a slight easing in global growth this year to a pace around 3 percent, the pitfalls are numerous. Prime among them is China.

Data on Tuesday is expected to show growth in China, the world's second-largest economy, cooled in the fourth quarter to 8.7 percent from a year earlier, against 9.1 percent in the prior quarter. It would be the slowest pace of growth since mid-2009 when the global economy was crawling out of a deep recession.

The biggest question is how much of the slowdown can be blamed on slackening worldwide demand for China's exports and how much on weakening domestic growth.

If China's internal growth is stalling, that would put yet another drag on countries such as Germany and the United States, which are counting on strong exports themselves to help compensate for sluggish growth at home.   Continued...