In all my years of decoding the confusing messages coming out of economic readings, the plans of the Federal Treasurer and the state counterparts, as well as the Reserve Bank (and I shouldn’t rule out those market moving influencers on Wall Street), I’ve rarely had to cover good news stories. Today is no different but these elevated concerns around China’s slow economic growth comes with a good news side story.

Minutes from the RBA’s last meeting say the board was considering another interest rate rise to make sure inflation keeps on heading down, but the concern that China’s slowdown could affect Australia’s economic growth kept the cash rate on pause.

As I’ve been arguing for some time, no one knows how much negativity the 12 rate rises since May 2023 will ultimately dump on the economy’s growth, and that includes the RBA!

In a nutshell, the RBA knows their rate rises will slow down the economy and just as builder Tim Gurner talked about this (and was pilloried for it), they want unemployment to rise, to cut consumer spending and force inflation down.

However, if China grows slower than expected, then we sell less exports and we grow slower. Combined with the unknown impact of past rate rises, as well as the mortgage cliff it has created, our economy could end up in recession. Note, I did say ‘could’. What’s important about this is that this is an outcome the RBA and many economists ruled out because their forecasts on China were more optimistic.

But as the SMH’s Rachel Clun tells us today: “The Reserve Bank fears financial deterioration in China will batter the Australian economy as the OECD warns the Chinese government may have limited tools to counter the slowdown, which could act as a drag on growth globally.”

This from Clun is the most important revelation: “The Paris-based Organisation for Economic Co-operation and Development expects global economic growth to slow as inflation continues to fall and interest rates bite, and warned China’s slowdown was a particular concern due to the country’s importance for international economic growth, trade and financial markets.”

See how this economic think tank believes we’ve probably had enough rate rises and inflation is set to keep falling. A bigger-than-expected China slowdown could add the danger of much slower growing economies than was expected, so all up a recession is possible.

OK, I’ve given you the potentially worrying news. Now it’s time for the good or less worrying information. Here’s Rachel Clun again: “The OECD’s forecast for Australian economic growth for this year remains 1.8 per cent, but the organisation revised down its forecast growth from China by 0.3 percentage points to 5.1 per cent. For 2024, it revised down its China forecast by half a percentage point to 4.6 per cent.”

Of course, this is all guesswork, and the numbers could be bigger or smaller. But here’s one last prediction from the smarties in Paris: “The organisation expects inflation to continue falling steadily in Australia, to 3.2 per cent in 2024…”

So how worried should we be about China? This is what AMP’s chief economist, Shane Oliver, had to say only on Friday: “Chinese economic data for August was stronger than expected, suggesting that growth may be stabilising. Growth in industrial production, retail sales and credit picked up more than expected, falls in exports and imports slowed and deflation abated.”

Shane conceded that this better news could be the result of Beijing’s stimulus measures and might only be a short-run improvement, but for the moment the negativity on China could be overdone.

Only a couple of days ago, Reuters reported the following on China’s recent economic stats: “The upbeat data suggest that a spate of recent measures to shore up the economy are starting to bear fruit, prompting JP Morgan to raise its forecast of China's 2023 gross domestic product growth to 5% from prior 4.8%. ANZ also upgraded its growth forecast for the world's second largest economy by 0.2 percentage points to 5.1%.”

The biggest risk for China is its property sector, and that has to be watched.

One thing is for sure: this China concern for the RBA should keep them from raising rates, provided inflation data continues to show its falling. All this explains why economics is often tagged the “dismal science”.