RISK MANAGEMENT

Citigroup: China's Economy is Sliding into Recession And is Likely to Drag the Global Economy With It

China's economy is sliding into recession, and the leadership is not ready for it, according to Citigroup Inc.’s top economist Willem Buiter, reports Bloomberg.

“They will respond but they will respond too late to avoid a recession, which is likely to drag the global economy with it down to a global growth rate below 2 percent -- which is in my definition a global recession,” says Buiter, a former external member of the Bank of England.

Buiter says a Chinese recession will be avoided if a consumption-oriented fiscal stimulus program funded by central government and monetized by the People’s Bank of China is implemented, according to Bloomberg.

The median estimate of 11 economists surveyed by Bloomberg earlier this month put China’s first-half GDP growth rate at 6.3 percent, compared with the official figure of 7 percent. But Buiter says the true rate of expansion “is probably something closer to 4.5 percent or less.”

The global economy will expand by 3 percent this year, while China’s is forecast to grow 6.9 percent, the slowest pace in a quarter century, according to economists surveyed by Bloomberg.

The current stock market turmoil is raising questions about “the competence of the Chinese authorities as managers of the macro economy,” says Buiter.

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