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China warns of ‘serious risk’ to economy in oil-related shock

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China’s economy could contract by 1.4 per cent this year, the world’s biggest oil-exporting nation said on Thursday, after a shock plunge in oil prices.

The China National Petroleum Corporation said in a statement that its forecast for gross domestic product growth in 2020 was negative, as oil demand contracted in the first half of the year.

China’s economy is the world ‘s largest producer of oil, with more than $3 trillion of crude and natural gas reserves, but the country has been struggling with high inflation, sluggish industrial growth and an ageing population.

A sharp fall in the price of crude, a key indicator of China’s economic health, has pushed its economy into a deep recession.

Its economy shrank 4.1 per cent in the second quarter from a year earlier, according to data compiled by Bloomberg.

Oil’s share of China ‘s GDP dropped from a high of 20 per cent to 15.5 per cent during the recession.

It rose to 27 per cent last year.

The country’s central bank has cut its benchmark interest rate to 0.25 per cent, the slowest rate since December 2014, and has kept the cash rate at a record low 1.5 percentage points above the level seen in the 1970s and 1980s.

“The central bank’s monetary policy has also been slow, and its economic outlook is also very uncertain,” said Zhang Xiaoyu, a Shanghai-based analyst at Coindesk.

“The market has been holding off on buying crude, but it may soon start buying again.

We have already seen a slowdown in the global oil market and oil demand will definitely fall.”

The country had its worst oil-price shock since 2011, when oil prices dropped by more than 50 per cent from a peak of more than US$100 a barrel.

China is already facing its third recession in a decade, the worst since the Great Leap Forward.

It is also facing the prospect of a repeat of the 2008-2009 global financial crisis, which was exacerbated by the sharp falls in oil.

On Thursday, China ‘ s central bank cut its forecast of inflation by 1 per cent for the quarter, from its previous estimate of 2 per cent.

Economists said it was likely to be revised downwards as the economy recovers from the recession and the government tries to rein in its soaring debt.

With a central bank rate of just 0.5pc, the People’s Bank of China has cut the inflation target to just 0,5pc from 2pc.

However, it still remains far above the world average of 0.2pc.

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