A slowdown in Asia would cost the world economy dearly, says the World Economic Forum

One of the critical risks to the world economy is a sudden drop in China’s growth below 6%, warned the authors of the World Economic Forum’s ‘Global Risks 2009’ report.

The warning came as news emerged that China's exports had slumped at their fastest rate in a decade.

The first impact of the slowdown will be on the Chinese domestic market, said Daniel Hofmann, group chief economist, Zurich Financial Services. If the migrant workers that moved into China’s cities to find work are made jobless it could cause a huge social problem, he said.

China's natural environment stands to be another domestic casualty of the country's virtual implosion, said Hofmann. A lack of funding will endanger environmental programmes, such as investment in clean air technologies, he said.

“Developing nations stand to lose out if they retreat from globalisation

The rest of the world will feel the impact of a hard landing in China by way of a rapid decrease in demand for products and services, noted Hofmann. But developing nations stand to lose out if they retreat from globalisation, he warned.

Hofmann predicted that the financial crisis will continue to be felt in the real economy in the form of defaults and bankruptcies. ‘With governments increasing debt and fiscal crises that risk has doubled or tripled,’ he said.

On top of all this, developed governments, whose budgets have been stretched to their limits by large scale rescue packages, have to deal with all the long-term problems they had before, like an aging population. ‘The risk landscape has worsened significantly since 2008,’ said the authors of the report.