‘Big risk’ facing Australian economy

The downturn in China’s economy is a major concern for Australia, although it’s unlikely to trigger a local recession, Treasurer Jim Chalmers has said. Picture: NCA NewsWire / Nicholas Eagar

The downturn in China’s economy is a major concern for Australia, although it’s unlikely to trigger a local recession, Treasurer Jim Chalmers has said.

A slew of recent data suggest that China - Australia‘s largest trading partner - is now on the brink of a financial crisis.

However, asked if China’s financial tremors could trigger an Australian recession, Dr Chalmers said that while growth would slow, a local contraction in economic activity was not expected to happen.

“That's not the conclusion that I’ve reached,” Dr Chalmers told Sky News on Sunday.

While the slowing Chinese economy will weigh on Australia, Treasurer Jim Chalmers said he did not expect a recession in Australia. Picture: NCA NewsWire / Martin Ollman

“It is concerning to see the weakness, the softness in recent weeks and months in the Chinese economy because it has obvious implications for us here in Australia.”

“In China, they're dealing with slowing growth, they’ve got deflation, there are concerns in their property sector and to some extent in the banking sector, their exports have slowed as well.”

“Our expectation is that the Australian economy continues to grow, but slowly. But a big risk to the outlook … [is] what's happening in China,” Dr Chalmers said.

China has long been a key driver of global economic growth, but a myriad of mounting headwinds has seen the country slide into deflation and stoked fears that the country is now facing the greatest economic headwinds in decades.

While other central banks around the world have signalled future rate increases may be ahead, tee People’s Bank of China has cut key interest rates to combat a bout of deflation.. Picture: NCA NewsWire / Jono Searle

Chinese exports slumped by 14.5 per cent in the 12 months to July, the country has now fallen into deflation, foreign investment has slumped to its weakest level since 1998, and youth unemployment has soared to record levels.

At the same time, the country faces a rapidly deteriorating property crisis. Country Garden, the distressed property developer and formerly China’s largest, is on the verge of default as it is unable to repay debt.

Beijing has recognised the growing economic challenges it faces, and has indicated a commitment to provide additional policy support.

In a surprising move, the nation’s central bank, the People's Bank of China, has also started cutting rates in an attempt to stave off a downward economic spiral.

Chinese President Xi Jinping has so far proved reluctant to embark on major stimulus programs to prop-up the country’s economy. Photo via Getty Images.

However, these actions will require further time to produce any tangible results and, up to this point, have failed to boost market confidence.

Previous economic slowdowns have been countered with generous stimulus packages that have kickstarted growth.

But Chinese President Xi Jinping has continued to eschew calls to pump the Chinese economy with stimulus, as the government did during the 2008 global financial crisis.

Economists have slashed their growth forecasts for the world’s second-largest economy in recent weeks with many analysts now predicting China could miss its official growth target of “around 5.5 per cent”.