Standard & Poor's warns slow growth in China may have strong knock-on effect on Europe

 
Lauren Fedor
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Economists have warned that slowdown in China has implications for the Eurozone (Source: Getty)
Economists at credit rating agency Standard & Poor’s have warned that slowing growth in China would have strong knock-on effects for the Eurozone and some of Europe’s largest economies.
S&P ran a simulation to assess the effects of China’s real growth slowing to 4.4. per cent next year and 3.9 per cent in 2017, instead of 6.3 per cent and 6.1 per cent, respectively, as previously predicted. They found that Eurozone real GDP would be 0.8 per cent lower than their current forecast by the end of 2017.
Germany and the Netherlands would be hit even harder, with their real GDPs downgraded by 0.9 per cent and 1.5 per cent, according to S&P.
“As the risks of an external shock are increasing, the effective transmission of the ECB’s accommodative monetary policy to the region's domestic economies is crucial for consolidating the Eurozone’s upturn,” said S&P’s chief economist for Europe, the Middle East, and Africa, Jean-Michel Six.
S&P also predicted that the ECB will extend its quantitative easing programme beyond September of next year, “likely until mid-2018”.
The economists said that the QE  programme could reach €2.4 trillion (£1.8 trillion), more than twice the ECB’s original €1.1 trillion commitment.
“As emerging market currencies have declined, the euro has begun to appreciate again, complicating the European Central Bank's QE programme, meant to jumpstart eurozone growth and lift inflation expectations. We believe that these two weaknesses point to a continuation of QE beyond September 2016, as by then inflation will still be well under the ECB's target of ‘close to’ 2 per cent,” the economists said.
The Eurozone slipped back into deflation yesterday, as the European Union’s statistics office, Eurostat, reported that prices in the single currency area had fallen year-on-year in September for the first time in six months.
Eurostat estimated that consumer prices in the 19 countries sharing the euro fell 0.1 per cent last month compared to the same month the previous year, after a 0.1 per cent rise in August.
The main factor behind the easing was a sharp annual drop in energy prices, which fell 8.9 per cent after a 7.2 per cent fall in August.

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