A copper price collapse of more than 60 percent, zinc cut by up to a half and oil down to $70 a barrel. That’s the fate facing world commodity markets should China’s growth dip to 3 percent in the next three years — a scenario economists at Barclays Plc (BARC) are now examining.
They’re not the only ones building models based on a steep decline in growth in the world’s second-biggest economy. Nomura Holdings Inc. (8604) estimates a one-in-three chance of a sharp drop by the end of 2014, and Societe Generale SA sees a “non-negligible risk” of less than 6 percent growth this year and an outside chance of 3 percent average expansion for this half and next.
Premier Li Keqiang’s efforts to rein in a record credit boom, avert a property-price bubble and strengthen environmental protections risk deepening China’s slowdown and adding to drags on the global economic recovery. With growth already heading for a 23-year low, a hard landing would batter commodity markets, hurting mineral exporters like Australia, Brazil and South Africa, and miners such as BHP Billiton Ltd. (BHP) and Rio Tinto Group, that have begun to slow expansion.
“This is a very delicate thing they’re trying to do because to slow gradually is very difficult, partly because it’s a self-enforcing mechanism and it can become a vicious cycle,” said Andrew Polk, an economist in Beijing with the Conference Board, a New York-based research group, who sees average growth of 5.5 percent over the next five years. “There’s a distinct possibility that the slowdown could get out of control and the risk of a policy misstep cannot be discounted.”