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Hong Kong: The United States is heading for a severe recession that could cause China's economic growth to slide to eight per cent and make Beijing less willing to let the yuan appreciate, US economics professor Nouriel Roubini has said.
"Downside risk to growth will emerge in China because of the US recession," Roubini, economics professor at New York University's Stern School of Business, said at a business lunch in Hong Kong. "If exports and growth slow, the willingness of China to let the yuan appreciate will be less."
Roubini, who is chairman of the economics website, RGE Monitor, believes the United States is already in a recession that will last until the middle of next year.
While US gross domestic product grew 0.6 per cent in the first quarter, that was due to a build-up of unsold goods, masking an underlying recession as residential and non-residential investment and corporate capital expenditure are falling and total employment has declined for four consecutive months, he said.
The US housing recession is the worst since the Great Depression and house prices, which have fallen 15 per cent from their peak, could be down 30 per cent 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 US 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.
China is cushioned by domestic demand and should avoid a hard-landing, but it will still see economic growth slide to eight per cent or slightly below, Roubini said, ending four years of more than 10 per cent growth.
Jonathan Anderson, China economist at investment bank UBS, is more upbeat, telling reporters this week that China's economy is on course to grow 9.5-10 per cent this year and 9-9.5 per cent in 2010.
"Exports to the US are already quite slow but exports to Europe have been accelerating," Anderson said. "Domestic demand is still strong, so China should hold up."
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