China not immune from U.S. Recession

Decouple this.
The US is in a recession which is likely to last for another 12 months with slow growth for some time after that. Yes, you say (yawn, yawn) we know, but the rest of the world is going to keep the demand bus rolling, right? Time will test this theory, but so far it is not looking supportive of “decoupling” pundits. All around the world, economic data is continuing to disappoint the unprepared.
US economist Nouriel Roubini, (although last year considered fringe for ominous warnings, was this week named one of the top 100 intellectuals in the world), warned again yesterday that the ongoing US slow down will continue to dampen growth in other parts of the world and in China:
“China is cushioned by domestic demand and should avoid a hard-landing, but it will still see economic growth slide to 8% or slightly below, Mr. Roubini said, ending four years of more than 10% growth.
The U.S. housing recession is the worst since the Great Depression and house prices, which have fallen 15% from their peak, could be down 30% from the peak by the end of 2010, he said. That will hurt consumption, and once the recession becomes evident, there will be defaults on bonds and corporate and personal loans.
The severity of the U.S. slump will, in turn, trigger a recession in Japan and in parts of Europe as housing bubbles have burst and a strong euro hurts exports. In Asia, weak global demand will cause a severe economic slowdown, though not a recession, as exports and financial markets are hit, he forecast.”
One upside benefit of this will be that faced with reduced exports and muted growth, China will be less likely to exasperate its slowing by allowing the Yuan to rise. This could help prevent at least a near-term collapse of the US dollar that some had feared. However the implications for the world economy over the next year seem ominous:
“The risk of a collapse of the U.S. dollar is limited because demand from sovereign wealth funds is strong and if (China stopped buying U.S. dollar assets) the yuan would rise,” he said.
Mr. Roubini said further interest rate cuts will enable the United States to emerge from recession by mid-2009.
See: China not immune from US slowdown: http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080508/REG/499857720/1036

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