The prospect of a hard landing for China’s economy represents the greatest macro credit risk, according European bankers, asset managers, and investors polled at Moody’s Investors Service Credit Trends conferences held recently.
Approximately one third of Europe’s financial market participants see China as the biggest macro risk facing European credit markets this year, says Moody’s Investor Services in a report published on Wednesday. Deflation in the euro area ranks second at 25%, the report notes, as this would keep debt levels high and expose the region to future shocks.
The credit rating agency says that it agrees that a sharp slowdown in China is the main downside risk for economic growth, but that it isn’t expecting that result. “It is clear that a slowing Chinese economy is a major concern among market participants. However, rather than a hard landing we expect a continuation of slower GDP growth at around 6% as Chinese authorities continue to use policy measures to avoid a sharp economic slowdown,” says Anke Rindermann, an associate managing director at Moody’s, in a statement.
Rather, a turn to populist economic policies in Europe itself “could represent a threat to continued progress on structural economic and fiscal reform”, the Moody’s report warns, which could, in turn, undermine Europe’s medium-term growth potential.
A majority of respondents polled believe that the EU will survive and remain intact; although many expect that it may only survive in a “significantly different” form. The outcome of the UK’s referendum on whether to leave the EU is “too close to call”, the report adds, and that the risk of a Greek exit is lower than last year, but not completely eliminated.
The results are based on polls conducted at Moody’s events in 12 cities across Europe, with more than 750 investors, asset and risk managers, underwriters, retail and commercial bankers.