SocGen cautious on China growth

25 September 2008

A strategist for French bank Societe Generale has issued a stark warning over China's economic prospects.

Albert Edwards said that Asia's largest economy could be hit hard by the recent worsening of the credit crunch in the West, which has seen all five Wall Street securitisation firms cease to trade as investment banks.

According to the expert, China's GDP might even contract in 2009 as a result of the market volatility, the Daily Telegraph reports.

Currently, many analysts forecast that continued strong growth in the developing world will ensure that global GDP will not enter negative numbers due to the credit crunch.

"People will be stunned if China's economy contracts, as I believe it will," Mr Edwards commented.

"Investors could be massively caught out…the consensus has a touching belief that emerging markets will prove resilient despite a deep downturn in developed economies…an outright contraction in global GDP is entirely possible next year."

The strategist added that the negative growth would come about due to emerging economies being "totally tied up with" US current account deficits.

In other words, China's growth is partially dependent on Americans spending more than they earn - conditions which are less likely to continue with recession conditions in America.

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