Instant Alert: A single chart illustrates why Goldman Sach' Jan Hatzius isn't worried about China bringing down the developed world

MANAGE SUBSCRIPTIONS   |   UNSUBSCRIBE   |   VIEW ONLINE   A single chart illustrates why Goldman Sach' Jan Hatzius isn't worried about China bringing down the developed world by Sam Ro on Jan 17, 2016, 12:08 PM Advertisement Volatility in China's currency and stock markets continues to be one of the most concerning stories in the world. As the world's second largest economy decelerates to its slowest pace in 25 years, the rest of the world is left wondering how it affects them. In a note to clients late Friday, Goldman Sachs Chief Economist Jan Hatzius argues that incremental deterioration in China should have littel impact on the developed, western world. “If China does slow more seriously, how big are the spillovers to DM growth?” Hatzius asks. “Probably not very big. The reason is illustrated in Exhibit 1, which plots exports to China, as well as more broadly to Asia ex-Japan, as a share of GDP. With the exception of Australia, Japan, and Germany, all of the China numbers are around 1%. This means that even if Chinese import volumes were to decline by 10% across the board due to a combination of Chinese domestic demand weakness and CNY depreciation—a very severe assumption—this would only take 0.1 percentage points off DM GDP growth directly.” To be clear, reducing China's influence on the world to just one rudimentary chart is an oversimplification. Trade alone doesn't capture the myriad microeconomic and second-order impacts China has on the business world. And to be fair to Hatzius and his team, they consider many variables and scenarios in their analysis of the world. But for simplicity's sake, this chart does an elegant job of communicating Hatzius' limited concern over how China may drag down growth in the US, Europe, and elsewhere in the developed markets. “Despite the recent market turmoil, our central global economic outlook has not changed materially,” Hatzius said. “We expect modestly above-trend growth and further labor market improvement in the major developed economies, gradual Fed rate hikes, and ongoing "bumpy deceleration" in China.” But Hatzius notes that the risks "are clearly tilted to the downside.” SEE ALSO: To say that what happens in China doesn't matter to the US is to ignore how the global economy works   Share the latest business news with your network: Email sent to:   |   Manage your email preferences   |   Unsubscribe Terms of Service   |   Privacy Policy Business Insider. 150 Fifth Avenue, New York, NY 10011