China Poses Risk For Global Recession, Societe Generale Report Says

The chance of China triggering a global recession if its economy faces a hard landing was approximately one in three, according to a new report released Wednesday by French banking and financial services company Societe Generale. The report comes amid continued global economic uncertainty following China’s currency devaluation in August, which triggered a 1,000 point drop on the Dow.

“On the major risks that we see over the coming year, China dominates the downside risks while U.S. dominates the upside,” the report said, according to the South China Morning Post. The report gave a 30 percent chance of China’s economy facing a hard landing, meaning an abrupt slowdown in growth following a period of high growth, as the government works to stabilize currency and assure global markets that the country’s high growth rate of 7 percent will continue.

While Societe Generale did not agree with allegations that China has been misreporting financial data, the group noted that growth in the country’s real gross domestic product has slowed more than previously thought and would need to be adjusted.

“China’s structural growth deceleration is only halfway through, and under the weight of debt and excess capacity, weakening investment demand will remain the main culprit,” said the report.

In an earlier statement, Wei Yao, an economist focused on China within the Cross Asset Research department of Societe Generale Corporate & Investment Banking, noted that China has entered a new economic “normal” with structural reforms.

“With the implementation of critical reforms, China's new economic normal means a state of slower growth but also one of better quality,” Yao said. “While some short-term pain is inevitable, the long-term prospects are certainly improving.”

Societe Generale named China a dominant black swan, meaning that economic risks are difficult to predict and have the potential to cause intense problems.

Societe Generale’s report followed new figures released by the Organization for Economic Cooperation and Development Tuesday that forecasted signs of slowing economic growth in China.