China may tip world into recession: Morgan Stanley

SHANGHAI: Forget about all the shoes, toys and other exports. China may soon have another thing to offer the world: a recession. That is the prediction from Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who says a continuation of China’s slowdown in the next years may drag global economic growth below 2 per cent, a threshold he views as equivalent to a world recession.

It would be the first global slump over the past 50 years without the US contracting. "The next global recession will be made by China," Sharma, who manages more than $25 billion, said in an interview at Bloomberg’s headquarters in New York. "Over the next couple of years, China is likely to be the biggest source of vulnerability for the global economy."

While China’s growth is slowing, the country’s influence has increased as it became the world’s second-largest economy. China accounted for 38 per cent of the global growth last year, up from 23 per cent in 2010, according to Morgan Stanley.

It’s the world’s largest importer of copper, aluminum and cotton, and the biggest trading partner for countries from Brazil to South Africa.

The International Monetary Fund last week cut forecast for global growth this year to 3.3 per cent, from an estimate of 3.5 per cent in April, citing weakness in the US.