Page last updated at 09:06 GMT, Tuesday, 13 January 2009

China slowdown 'big global risk'

Members of the Swiss army place barbed wire on a fence to secure the area at the helicopter landing place in Davos-Dorf, Switzerland
The five-day World Economic Forum will start in Davos on 28 January

A severe economic slowdown in China is one of the biggest risks faced by the world this year, the World Economic Forum (WEF) has warned.

The WEF report said a hard landing for China's economy could create domestic social tensions and put stress on the global financial system.

It also warned of the risks of high deficits, as governments worldwide try to spend their way out of recession.

The WEF's annual meeting takes place in Davos, Switzerland, later this month.

The five-day event attracts heads of state, business leaders, and academics, as well as trade unionists, campaigners and a smattering of celebrities.

The financial crisis and resulting economic slowdown are likely to dominate the proceedings.

Export growth is likely to be flat in 2009
Jing Ulrich, JP Morgan's chairwoman of China equities

"The global economy is still not in the clear as it continues to be prone to substantial volatility," said Daniel Hofmann, chief economist at Zurich Financial Services and an author of the report.

"One of the biggest risks is that short-term crisis fighting may induce businesses and government to lose the long-term perspective on risk," he added.

China risk

The report said there was a risk that Chinese growth could slow to 6% or below this year.

This is much lower than the 7.5% forecast by the World Bank and would "significantly impact" the already weak global economy.

The Chinese economy expanded by 11.9% in 2007, but economists say the rate could be half that in 2008.

While this is much better than the recessions expected in the UK or US, it would be the weakest period of Chinese growth since 1990 and the aftermath of the Tiananmen Square crackdown.

The report also said that global stock markets had fallen on average by around 50% last year, and warned that the slide could continue.

It further noted that while there was a short-term risk of deflation, inflation was a greater risk in the longer-term, as governments go all out to stimulate their economies.

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