China may be heading for a hard landing. The country’s second-quarter gross domestic product (GDP) growth could falter to below an annualized seven percent should activity not pick up, according to the China Center for International Economic Exchanges. Of course, the crisis in Europe and the eurozone is negatively impacting the demand for Chinese-made goods.
There are also fears after Moody’s downgraded Spain’s ability to pay down its debt. The yield on the 10-year Spanish bond surged to a record 6.96% on Thursday, which is not sustainable. Greece ran into trouble after its yields broke the seven-percent level. Greece will go to the polls this Sunday for another attempt at forming a coalition government and accepting the austerity measures in order to receive its second tranche of bailout funds from the other eurozone members. Failure to do so could see Greece forced to exit the eurozone. This would in turn cause havoc throughout not only Europe, but also the world, and possibly drive another global recession. This is impacting oil prices, as discussed in Oil at Manageable Levels, but Risk Remains.
Most at risk from the eurozone crisis will be the emerging regions in Eastern Europe, much more than Asia.
Russia, the largest economy in Eastern Europe, cut its GDP estimate to 3.4% for 2012, down from the previous 3.7%, and 4.3% in 2011, according to internal government estimates. Inflation is also a problem in Russia.
The second largest economy in Eastern Europe, Poland, reported GDP growth of 4.3% in 2011, according to the National Bank of Poland, but the impact of the eurozone crisis is pushing down growth to below four percent.
Other smaller economies in Eastern Europe are also seeing contraction in the economy due to the eurozone.
Better plays for emerging growth will likely be Asia and Latin America; although, should China weaken, the impact on regions in Asia could be significant.
The key growth areas in Asia are what are known as the “little tigers:” Hong Kong; Singapore; South Korea; and Taiwan. But there are concerns here.
South Korea, the fourth largest economy in Asia, grew at 6.1% in 2010, but growth is estimated to fall to 3.5% this year, according to the Bank of Korea.
And then there is Latin America, which is estimated to slow to 3.7% this year, down from 4.5% in 2011, according to the International Monetary Fund. On the plus, growth is expected to rally to 4.1% in 2013.
The key player in Latin America is Brazil. The Latin powerhouse is estimated to grow at 3.0% this year, up from 2.7% in 2011, and up to 4.1% in 2013. The country is building infrastructure as it gets set to host the FIFA World Cup in 2014 and summer Olympics in 2016.
Longer-term, I continue to like China, but there could be trouble if the country stalls amid the eurozone crisis. South Korea is worth a look.
I would avoid Europe and the eurozone for now. In Latin America, stick with Brazil.