Agustino Fontevecchia
July 15, 2013

The global economy may no longer be able to rely on China to be the growth engine it’s been in the past. On Monday, China’s official statistics agency announced the world’s second largest economy grew 7.5% in the second quarter as industrial production and fixed asset investment continued to dip. While the slowdown came in line with analysts’ expectations, it presages further slowdowns, as China’s GDP will probably average 7.5% this year, falling to 6.9% next year, Nomura’s forecasts indicate, which given the size of China’s economy has important implications for global growth going forward.

No hard landing for China, but continued growth contraction for several quarters to come, Nomura’s fixed income research team said after reading through data released on Monday. Growth domestic product slowed to 7.5% on a year-over-year basis, down from 7.7% in the first quarter, and will probably trend down in coming quarters, hitting 7.4% in Q3 and capping the year off at 7.2%.

China’s new leadership is in a difficult place. Under Premier Li Keqiang, policymakers are trying to move away from a credit-backed growth model, fostering domestic demand and value added exports to achieve a more sustainable economy. They’ve stressed in repeated speeches their willingness to tolerate lower growth to achieve their goals, and acted on those words, clamping down on a shadow banking system on steroids, causing a dangerous liquidity squeeze that threatened to spill over to the broader economy.

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