Mumbai: Energy and steel may be the hardest-hit sectors in the Asia-Pacific (APAC) in the event of a sharp slowdown in Chinese growth, says Fitch Ratings.
“The sector outlooks for APAC steel and energy, and global shipping, are negative even under our current forecast expectations where China slows only gradually.”
“Asian manufacturing and technology sectors would also be significantly affected, given the scale of Chinese demand and its position in the regional supply chain,” Fitch said in its report titled ‘China Slowdown Scenario’.
The slowdown scenario, analysed with the help of Oxford Economics’ Global Economic Model, assumes average China GDP growth rate of 2.3 per cent over the 2016-2018 period, compared with 5.7 per cent during the same period in Oxford’s base case.
A survey by Fitch analysts reveals that such a hypothetical China slowdown would affect the financial performance and credit profiles of companies worldwide, especially those in oil and gas, steel, mining, chemicals and shipping industries.
Fitch’s core view remains that China will not experience a “hard landing”, with GDP growth forecast to slow to 6.3 per cent and 6 per cent in 2016 and 2017, respectively.
But some risks remain of a disorderly structural re-balancing, where growth slows more quickly than forecast.
Fitch has assessed the impact of a hypothetical scenario, in which China’s economy experiences a rapid and substantial deceleration over a three-year period to end-2018, with shocks to both investment and consumption.
Under this scenario, Chinese GDP growth would fall to an average of 2.3 per cent per annum from 2016-2018.
Major trading partners in the Asia Pacific region, notably Hong Kong, Korea, Japan, Taiwan and Singapore, would see the largest negative impact to growth in the China stress scenario.
GDP growth rates for APAC countries in 2017 would fall to 1.8 per cent from a forecast 4.2 per cent.
Major commodity exporters in Latin America, notably Chile and Brazil, would also be hurt by persistently weak commodity prices and soft demand in China, particularly if Chinese investment slowed sharply.
Asia Pacific manufacturers of heavy equipment and machinery, and dry-bulk shipping companies, would suffer as Chinese demand and investment growth and regional trade are expected to fall rapidly.
Chemicals, ores and minerals are also among the largest categories of exports to China from the APAC region. Consumer product manufacturers such as office and telecom equipment supplies would also be hit.
If Chinese consumer demand growth were to fall significantly under this scenario, then domestic technology firms would also experience pressure on revenues and margins, the report said.