How China's slowdown weighs on global economy and markets

AP News
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Posted: Oct 19, 2015 2:12 PM

WASHINGTON (AP) — What happens to the Chinese economy resounds far beyond Shenzhen and Shanghai.

Those affected by the world's second-biggest economy range from South African coal miners and Canadian oil-field workers to Australian gas producers and Americans saving for retirement.

Beijing said Monday that the nation's economic growth dipped to 6.9 percent from July through September from a year earlier — its slowest pace in more than six years. The news was a bit better than economists had expected. But it nevertheless added to evidence that China continues to slow as investors, executives and policymakers watch with concern.

Growth in China's gross domestic product has decelerated for four straight years and will likely keep slowing through 2017, according to the International Monetary Fund.

Here's a look at the fallout:

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GLOBAL ECONOMIC GROWTH

The IMF says China's deceleration is having a bigger-than-expected impact on the global economy. That's one reason the IMF has lowered its forecast for global growth this year to 3.1 percent, which would be the weakest rate since the recession year of 2009 and down from a July estimate of 3.3 percent.

On the heels of three decades of super-charged growth, China accounted for 30 percent of global growth last year, up from 13 percent a decade earlier, according to the World Bank.

Most of the pain is being absorbed by emerging market countries and others that supply raw materials to China. The IMF expects emerging market economies to slow for a fifth straight year.

"China's economic struggles are adding to the uncertainty that is already in place for the global economy, signaling that lower growth rates for the global economy may be in store," a report Monday from the International Strategic Analysis consulting firm warned.

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COMMODITIES

As its economy surged, China consumed disproportionate amounts of the world's resources — nearly half the copper, 54 percent of aluminum, 50 percent of nickel and 45 percent of steel, according to the World Economic Forum.

Now that China is slowing, commodity prices have been sinking. The Standard & Poor's GSCI commodities index — which measures 24 commodity prices, including crude oil, copper and cattle — has dropped 37 percent in the past year. The pain is widespread: South Africa and Zambia depend on coal exports to China, Chile on copper shipments, Australia on a range of commodity exports.

Tumbling oil prices, reflecting China's slower growth, contributed to a contraction in Canada's economy for two straight quarters — the technical definition of a recession.

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FINANCIAL MARKETS

Investors, who had grown used to China's role as an economic powerhouse, have been shaken by signs of its weakness.

Beijing hasn't helped itself. Last summer, it made a clumsy attempt to halt a slide in Chinese stock prices. It spent heavily to prop up shares and prosecuted investors who bet on falling prices.

Then, on Aug. 11, it unexpectedly devalued the Chinese currency, the yuan. China said it was just catching up with signals that investors felt the currency was overvalued. But many investors saw the move as a desperate bid to help Chinese exporters (who enjoy a price edge from a lower currency) and as a sign that China's economy was worse than anyone knew.

Over the next two weeks, the Dow Jones industrial average plummeted 11 percent. The Dow has since recovered most of the lost ground. But investors remain on edge. Monday's report of 6.9 percent third-quarter growth at least provided reassurance that China wasn't on the brink of an economic collapse.

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THE FEDERAL RESERVE

The Federal Reserve has long been expected this year to lift short-term U.S. interest rates, which it has kept at record lows since December 2008. The American economy, though slowing, is the world's largest and most powerful. But at their September meeting, Fed policymakers decided to hold off on a rate hike: In part, they were too worried about China's slowing economy and what it meant for the rest of the world.

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