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How a 1% negative shock to China's growth affects commodities
Mar 29, 2016


China has been slowing, but just how much of an effect this will have on other countries has been a difficult question to answer. Luckily, recent research done by the International Monetary Fund (IMF) and the Asian Development Bank (ADB) has put a number to this effect. The IMF estimates that a 1% permanent negative Chinese GDP shock reduces global growth by 0.23% in the short run. The ADB on the other hand concluded that China's slowing growth is expected to see GDP in the rest of developing Asia by fall by 0.33% in the next two years. Further, today's chart of the day quantifies the effect of slowing Chinese growth on various important industrial commodities.

Fortunately, India's weak trade links with China mean that India is less vulnerable to economic shocks from China. However, less does not mean nil. China's effect on commodity prices as illustrated in the chart is one of the non-trade related risks for India. For falling prices mean substantially lower investments by companies whose business is associated with these commodities.

This Chart Of The Day was published in The 5 Minute WrapUp - Is Your Stock a Big Fish in a Small Pond?

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