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China slowdown threatens pace of global recovery

The global economic recovery has begun but will come under threat from a slowdown in China and rising commodity prices, according a report from the Organisation for Economic Co-operation and Development (OECD).

With economic growth varying significantly market-by-market, the US and Europe are expected to experience slower economic growth than other regions. World gross domestic product is expected to grow 4.2% in 2011 and 4.6% in 2012 comparing favourably to OECD countries, which are only forecast to rise by 2.3% and 2.8% in 2011 and 2012, respectively.

Unsurprisingly, the 89th edition of the report anticipates that emerging economies will see faster growth but warns of the risks of overheating. China is one country at risk, and is expected to see the pace of growth contract this year from 10.3% in 2010 to 9% before increasing again slowly by 0.2% in 2012.

India, where 2011 GDP is a percentage point higher than China at 10.4%, will see a harsher contraction, falling 1.9% in 2011 to 8.5% overall.

In mature markets, Europe is expected see the slowest growth staying steady at 2% over the next two years, while the US should fare better with GDP at 2.6% this year and 3.1% next year. Japan, which has suffered in the wake of natural disasters, will experience a dip of 0.9% by the close of 2011 before fighting back to 2.2% in 2012.

The global modest recovery is expected to be driven by trade and investment replacing monetary stimulus and an overall increase in confidence within the private sector. Government policies dealing with high unemployment are also expected to be a huge contributing factor, along with reductions in labour taxes.

OECD’s Economic Outlook takes into account projections from 40 countries from around the world.

Josh Colley, London