On second thought, China slowdown will hit global-growth outlook

China's deepening struggles are starting to make a bigger dent in the global economic outlook.

Moody's Investors Service on Friday cut its 2016 growth forecast in Group of 20 economies to 2.8 per cent, down 0.3 per centage point from the company's call less than two weeks ago. China is projected to grow 6.3 per cent in 2016, down from 6.5 per cent previously, the credit-rating company said in a report. Citigroup Inc. last week pared its projection for world growth in 2016 to 3.1 per cent from 3.3 per cent, the third straight time the bank has cut the forecast.

Recent Chinese data including numbers on credit expansion and fixed-asset investment suggest a sharper slowdown this quarter than Moody's previously judged, while Citigroup said the worsening outlook was driven by "significant" downgrades for China, the euro area, Japan and several other major countries. Economists in a Bloomberg survey earlier this month gave a median estimate of 3.5 per cent global growth in 2016, compared with 3.6 per cent in the July survey.

"We're seeing evidence that the slowdown is broader than expected" in China, said Marie Diron, a London-based senior vice president at Moody's and one of the report's authors. "It's long been clear that there's a slowdown in the manufacturing and construction sector, but the service sector was more resilient. That's still the case, but we're seeing some signs of weakness in the labor market."

Efforts to boost growth by the People's Bank of China, which eased its main policy rate this week, will only partly offset the slowdown, Moody's said in the research report. Moody's said it cut its global projection because of "information that has become available" since the August 18 publication of its previous forecast. In addition to China, Moody's lowered outlooks for nations including Brazil and Russia.