Economic woes as Chinese and US growth slows

Chinese growth slowed dramatically in the second quarter with the news little better in the US as the Federal Reserve reined in its growth forecast for 2010.

The news from the US and China added to investors' fears about the health of the global economy, pushing European stock markets lower in early trade, with the FTSE 100 down 21 points to 5231.

Beijing revealed that the Chinese economy expanded by 11.1% in the first half of the year compared to the same period last year, but this marks a considerable slowdown over the last three months after the economy grew by 11.9% in the first quarter alone.

The slowdown follows the Chinese authorities move to tighten fiscal policy amid concerns about a bubble in the housing market, but investors will be concerned given the importance of the country to the global economic recovery.

Industrial production growth fell back from 16.5% in May to 13.7%, year on year in June, reflecting the tail off in growth. The one bright spot is that this has also helped curb in inflation, which fell to 2.9% in June, down from 3.1% in May.

Over in the US, the Fed’s June meeting notes reveal that it pared back its growth expectations for the year from 3-3.5%, down from 3.2-3.7% in April.

These are back in line with its January estimates, which had been revised upward after a strong first quarter.

Disappointing retail sales and job numbers over the past fortnight appear to have dampened the committee members’ bullishness, making the chances of an earlier than expected interest rate rise less likely.