The potential global effects and transmission channels of a slowdown in Chinese growth

Rationale Having picked up following the end of the zero-COVID policy, Chinese economic activity is now slowing. This comes against a backdrop of, inter alia, increased uncertainty related to difficulties in the domestic real estate sector. This article examines and quantifies the different channels through which a potential slowdown in the Chinese economy could affect activity and inflation levels in the world’s major economies. Takeaways •A growth slowdown in China, partly linked to problems in its real estate sector, could pose a downside risk to activity levels in the world’s major economies. •This impact would be felt, with varying intensity, through various channels: trade, commodities and international financial markets. •In the euro area, a temporary slowdown in Chinese economic activity of 1 percentage point (pp) would reduce GDP growth by 0.1 pp in the first year, while lowering inflation by 0.4 pp.