Slowing growth in China as assumed in our baseline scenario - i.e. moderating to 8.9% this year and 8.3% in 2012 will only have a limited impact on the world economy. While Chinese import demand for exports from countries like the US, Germany and Japan will slow, we still expect growth rates for these countries' exports of around 15% in 2011 and 7% in 2012. Moreover, the direct impact on real GDP growth from slowing Chinese import demand should be manageable due to the fact that the growth contribution of net exports is small compared with domestic demand. The net effect of slowing growth in global commodity prices - to 6-8% in 2011-12 from its 12% annual growth average between 2002 and 2008 - will likely be positive for the global economy as it will reduce inflationary pressures for both developed and emerging economies, including commodity exporting countries. This should also help to keep key central bank policy rates low for longer. A potential re-pegging of the CNY to the USD would be problematic for China's export partners, leading to tensions. As for stock markets, the large share of China-dependent companies (be it due to the commodity link or via China-generated revenues) make the global index vulnerable to a Chinese slowdown. Clearly, a "hard-landing" scenario where Chinese growth drops to around 8% and 6% in 2011 and 2012, respectively, would magnify this effect, leading e.g. to substantial declines in exports to China from G3 countries next year.

Eoin Treacy's view The Chinese monetary authorities have been in tightening mode for more than a year. Inflationary pressures have been stubbornly high, wages demands are mounting and inclement weather has damaged crops. Efforts to cool the housing market have met with mixed success and the banking sector has been forced to raise capital on successive occasions. It is therefore unsurprising that the Chinese economy is unlikely to grow as quickly this year as it has done over the last few years.

If we take a wider perspective, the USA and Europe are currently threatened with recession. Even if they avoid this fate, they are still likely to remain low growth environments. China currently appears more focused on combating domestic speculation than supporting the global economy. Therefore it is reasonable to ask where the engine for growth is going to come from.

Lower commodity prices are a likely precondition for a return to robust global economic growth. A slowing Chinese economy could help provide such an outcome. A rapid improvement in Libyan oil exports would also be beneficial as would a conclusive end to the Eurozone's crisis. Substantive improvement on any of these fronts would be a net positive but we remain cautious in absence of such evidence.