Weekly Economic Briefings > Emerging Markets Weekly Economic Briefing

In our view, the recent financial market turmoil is more than a jittery response to impending US rate rises or the renminbi devaluation two weeks ago. At its heart is a growing realisation that the Chinese economy is slowing and perhaps even stalling. We are not surprised, having been well below consensus on China for some time. Indeed, the risk that our downside scenario materialises that China's economy will suffer a hard landing appears to have increased appreciably and is now close to being our baseline assumption. This would mean average GDP growth closer to 4% over the next five years rather than our baseline forecast of 5.8%.Looking beyond the official data gives clear evidence of a sharp slowdown in China, with sales of consumer goods such as cars and smartphones falling, as well as very weak trade data and slowing industrial production growth. The authorities are responding (with another reduction in interest rates and banks' reserve requirements this week) but they have not so far announced the kind of massive stimulus package that followed the global financial crisis.If China is unable to prevent a continued rapid slowdown, the implications will be felt around the world. Our scenario modelling indicates that a hard landing would prompt the Fed to delay raising rates, possibly for many months, with other monetary authorities following suit. Commodity prices will continue to fall, and the risk of 'currency wars' would rise.