Workers work at a non-woven filter cloth factory in Taoyuan, Taiwan on March 30, 2020, which uses this fabric to make surgical masks. REUTERS/Ann Wang

Reuters Singapore/Seoul, October 19-China's economic setback has bleaked the outlook for countries such as South Korea and Thailand, as the world's second-largest economy's factories have slowed sharply and trade bottlenecks have hit Asian supplies. And the demand side.

Data released this week showed that China's GDP growth slowed in the third quarter, affected by power shortages, supply chain obstacles and the real estate market crisis, the growth hit its lowest level in a year. read more

For China's trading partners, this decline has brought new risks to the global recovery that is struggling to recover from the pandemic recession.

Frederick Neuman, co-head of Asian Economic Research at HSBC, wrote: "Yes, growth seems to be strong elsewhere, namely the United States and Europe." "But China has always been the main engine of growth in the region-with With its development, the Asian economy will lose most of its momentum."

HSBC's analysis shows that the correlation between the Asia-Pacific economies from South Korea to New Zealand and the changes in China's economic growth is much higher than the correlation with changes in the GDP of the United States or Europe.

Economists at the bank said that for every one percentage point of China's economic growth, South Korea, the trading powerhouse, will report about 0.7 percentage points of additional growth.

The analysis shows that so far, South Korea is most sensitive to changes in China's economic growth, followed by exporting countries Thailand and Taiwan.

The expected economic slowdown in China has prompted Citi analysts to lower their growth forecasts for economies in the region, including South Korea, Taiwan, Malaysia, Singapore and Vietnam.

A Reuters corporate survey last week revealed that most Japanese companies are worried that the economic slowdown in China, Japan’s largest trading partner, will affect their business. read more

The slowdown is being felt in most parts of the Chinese economy, from the retail to factory sectors, whose output growth has been the weakest since the pandemic began.

Industry data released last week showed that China's car sales in September fell by 19.6% year-on-year, a fifth consecutive month of decline amid the long-term global semiconductor shortage and power crunch.

Similarly, due to regulatory crackdowns, the number of new construction starts in China's real estate market has dropped sharply, which is a risk for raw material exporting countries such as Australia. read more

Since hitting a record high in mid-May, iron ore prices have almost fallen by half due to restrictions on steel production in China and a slowdown in real estate that have affected demand. read more

Last week, mining giant Rio Tinto (RIO.L) lowered its forecast for iron ore shipments in 2021, mainly due to tight labor market conditions in Australia, but it also warned that the Chinese regulatory crackdown would have adverse effects. read more

Despite the risks from China, analysts say that Asia will be able to prevent a sharp decline in domestic demand because the increase in vaccination rates allows countries in the region to get rid of COVID-19 restrictions.

Similarly, China's demand for certain commodities such as fuel and food remains strong. This means that for the time being, central banks are unlikely to shift from the overall change in the monetary environment during the crisis.

Singapore tightened its monetary policy last week. read more

In addition to broader demand shocks, complications in Asian and other regional economies may come from China’s deteriorating supply-side issues, such as the power contraction.

So far, Chinese manufacturers and exporters have not significantly passed on the costs caused by various supply shortages such as coal and semiconductors.

But analysts warn that the situation surrounding inflation is unstable.

Although weak demand may ease price pressures, if the supply chain bottleneck is not resolved, it may cause a "stagflation" nightmare, in which price spikes are accompanied by stagnant growth.

"I think it might be a bit of a double whammy now. Because China is one of the economic engines of the region, any slowdown will affect the demand for regional goods and services," said Selena Ling, head of research and strategy at the Ministry of Finance. At OCBC Bank.

“Secondly, due to the ongoing power contraction, policymakers are likely to prioritize households (usage) to meet winter demand rather than industrial activities. So this may exacerbate the disruption of the global supply chain.”

Our standard: Thomson Reuters Trust Principles.

Subscribe to our daily featured newsletter to receive the latest exclusive Reuters reports sent to your inbox.

Reuters, the news and media division of Thomson Reuters, is the world's largest multimedia news provider, reaching billions of people around the world every day. Reuters provides business, financial, domestic and international news directly to consumers through desktop terminals, world media organizations, industry events and directly.

Rely on authoritative content, lawyer editing expertise, and industry-defining technology to build the most powerful argument.

The most comprehensive solution to manage all complex and expanding tax and compliance needs.

The industry leader in providing online information for tax, accounting and finance professionals.

Information, analysis and exclusive news about financial markets-available in an intuitive desktop and mobile interface.

Access real-time, reference and non-real-time data in the cloud to power your business.

Screen high-risk individuals and entities on a global scale to help discover hidden risks in business relationships and interpersonal networks.

All quotes are delayed by at least 15 minutes. Please see the complete list of exchanges and delays here.