China’s Slowdown and Global Financial Market Volatility: Is World Growth Losing Out?

China’s GDP growth slowdown and a surge in global …financial market volatility could
both adversely affect an already weak global economic recovery. To quantify the global
macroeconomic consequences of these shocks, we employ a GVAR model estimated
for 26 countries/regions over the period 1981Q1 to 2013Q1. Our results indicate that (i) a
one percent permanent negative GDP shock in China (equivalent to a one-off one
percent growth shock) could have significant global macroeconomic repercussions, with
world growth reducing by 0.23 percentage points in the short-run; and (ii) a surge in
global financial market volatility could translate into a fall in world economic growth of
around 0.29 percentage points, but it could also have negative short-run impacts on
global equity markets, oil prices and long-term interest rates.