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Eurozone crisis may slow Chinese economy


08:18, August 27, 2012

SINGAPORE - A further deterioration in the eurozone debt crisis could slow China's economic growth, a team of economists said in a report released on Friday.

The economists from the National University of Singapore and China's Xiamen University projected a growth of 7.68 percent for the Chinese economy this year, followed by 8.93 percent in 2013.

The forecasts were based on the latest projections by the International Monetary Fund for the eurozone and the United States. The eurozone is expected to contract by 0.3 percent this year and grow by 0.7 percent next year, whereas the US economy is expected to grow by 2 percent and 2.3 percent, respectively. Decisive actions are expected of the eurozone political leaders to prevent the crisis from deteriorating, and of the US congress to manage to avoid the potential "fiscal cliff."

Based on such assumptions, the Chinese economy is forecast to grow 7.47 percent in the third quarter this year and 7.52 percent in the fourth quarter.

This is in comparison with the growth of 7.6 percent in the second quarter, which was the slowest in three years.

However, if the eurozone leaders failed to reach the much needed consensus, leading to a contraction of 0.5 percent for the eurozone this year and a contraction of 0.3 percent next year, China's economic growth is projected to be slowed further to 7.56 percent this year and 8.22 percent next year.

These represent a further slowdown of 0.12 percentage point this year and 0.71 percentage point next year.

"The potential recession in the eurozone both this year and next year is expected to deal a blow to China's exports, especially the exports to the eurozone, which will fall by 11 percent. This will reduce China's economic growth by some 0.7 percentage point," said Chen Kang, a professor from the Lee Kuan Yew School of Public Policy, National University of Singapore.

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