Markets unfazed by widely predicted slowdown in China

The world’s second-biggest economy reported year-on-year growth of 7.6 per cent in the second quarter – an enviable figure by western standards but

China’s slackest pace in more than three years.

World markets took the news in their stride as the outcome was in line with expectations and increases the likelihood that a Chinese government committed to strong growth will launch a raft of stimulus measures.

Simon Denham, chief executive of Capital Spreads, said: “Investors remember that during the crash in 2008 when all the major western economies slumped into a deep recession, China implemented huge stimulus measures and barely blinked.

“Due to the love affair that its leaders have with growth, the chances of another bout of stimulus measures are highly likely if they feel it necessary and of course it’s not as if they’ll need to borrow any money to do so by going to the debt markets.”

He said China’s economy was slowing because its big customers in the US and Europe are not buying its goods. The country is trying to replace the lost demand from the West with its own domestic demand, but that is not yet taking up the slack.

Recent survey data indicates that Chinese manufacturing in particular is suffering, and that the squeeze may be even tighter than the official figures suggest.

Along with the other “Bric” nations, China is seen as one of the powerhouses of global growth, but a recent report suggested only Brazil remains unaffected by the slowdown in

demand from Europe.

As Europe struggles with the joint problems of zero economic growth and soaring sovereign debts, ratings agency Moody’s added to the pressure yesterday by downgrading Italy two notches.

It cut Italy’s sovereign debt rating to Baa2, citing doubts over the government’s long-term resolve to push through much-needed reforms and saying persistent worries about Spain and Greece were increasing its liquidity risks.

However, the country’s banks came to the rescue, buying up debt at an auction in a show of solidarity.

Solid domestic demand helped the Italian treasury sell the top planned amount of €5.25 billion (£4.1bn) in bonds, paying less than a month ago on three-year paper.

Nicholas Spiro, managing director of Spiro Sovereign Strategy, said: “This was a challenging enough auction without the downgrade which makes the result look all the more impressive. Once again, the treasury was able to get its debt out the door, which right now is the overriding priority.”