OTTAWA — China’s economy slowed in the third quarter to its lowest rate in two years, adding a third obstacle — along with problems in Europe and the United States — to Canada’s economic recovery.
The world’s second-biggest economy registered a 9.1 per cent growth rate in the three months ended in September, after rates of 9.7 and 9.5 in the first and second quarters.
Those growth rates would be the envy of advanced countries, but analysts note that China needs to grow by about 6.5 per cent just to keep up with its expanding labour force.
The easing in gross domestic product is consistent with other recent soft data, including shrinking export numbers and manufacturing surveys.
The danger, say economists, is the impact on the global economy if China experiences a so-called “hard landing,” and the impact it would have on demand for Canadian commodities such as oil and metals.
China represents about 12 per cent of the global economy but about one third of global growth and “punches above its weight” when it comes to demand and prices for commodities, said CIBC economist Peter Buchanan. China absorbs about 40 per cent of global copper sales and 10 per cent of oil consumption.
“Yes the economy is falling and they have other problems like local government debt and bad loans. The worry is if the economy does falter, that makes it more difficult for (Beijing) to step in with a massive stimulus program as they did in 2008,” he said.
“We’re particularly sensitive to that. Half of the Toronto Stock Exchange is resources and we sell resources, they buy them.”
An indication of how exposed Canada is to China’s economy is the growth in orders of British Columbia lumber to China. Although up 29 per cent in August compared with the same month in 2010, the rate was markedly down from triple-digit growth in the first six months of the year.
Buchanan and most analysts still believe a hard landing for China is unlikely, although they add that the emerging economy can no longer be counted on to sustain global growth if the United States and Europe falter.
They point out that China has, in part, dampened its expansion by tightening credit in order to rein in inflation.
But Scotiabank’s Derek Holt noted that markets are focused on the “direction” of China’s economy and it has been downhill since the spring of 2010.
There were some encouraging signals in the report from China, particularly that September, the last month of the quarter, showed strong gains in industrial production and retail sales.
Markets largely ignored the monthly data in favour of the more gloomy three-month picture with North American markets opening lower Tuesday before recovering in the afternoon.