This week, we published a report in which we employed the global economy model of Oxford Economics to analyze the potential impacts of a slowdown in economic growth in China on the United States, Japan and Eurozone economies. We use the 1989-1991 period when real GDP in China fell 12.5% below its 1980-88 trend as a benchmark for thinking about a "hard landing" scenario in China over the next few years. If a similar deviation from trend should materialize, then Chinese real GDP will be roughly flat next year. The economy would contract by 2.6% in 2025 before eking out a growth rate of 2.7% in 2026.
Using these estimates of Chinese GDP growth in 2024-2026 as inputs, we ran Oxford Economics' global economy model to estimate the effects on GDP growth and inflation over the next three years in the United States, the Eurozone and Japan. As displayed in the nearby table, the Chinese economic growth rates that are specified above would reduce U.S. real GDP growth by only 0.1 percentage point in 2024 (0.4% versus 0.5%) and by just 0.2 percentage points (1.9% versus 2.1%) in 2025. The estimated effects on GDP growth rates in the Eurozone and Japan are a bit larger, but by no means would we characterize them as "significant." - Wells Fargo
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