Countries that don't directly trade with China will also be affected as they sell to countries that export to China.
Willem Buiter, former member of the Bank of England's monetary policy committee said that global recession is the most likely outcome with a 55% probability.
He further defines recession as a period during which the actual unemployment rate is above the natural employment rate or the level of actual GDP is below the level of potential GDP, reports The Economist.
Buiter then said that GDP growth at market exchange rates will decline from its likely current rate of 4% to 2.%% or less by the middle of 2016 and will stay at or below 2.5% for a year or more.
According to The Economist, the reason that Buiter gave behind saying so is the negative world trade growth in the first half of 2015. "Commodity prices have weakened, global inflation rate has fell down, there is a decline in global stock prices and corporate earnings growth is slowing down in most countries," he added.
Buiter then anticipates that the real state of GDP growth in China is currently 4% and it may drop to 2.5% by 2016 and that would mean recession in China.
He said, "Investment in China has been, on average, woefully inefficient - especially since 2008. Most of it continues to be allocated to infrastructure, construction and traditional industrial and extractive activities."
This situation is unlikely according to Buiter and he said that this will have significant effects in the developed world. According to reports, in 2014, China's share of world GDP was 13.3% and 14.3% of global trade.
Countries that don't directly trade with China will also be affected as they sell to countries that export to China.
Buiter concludes by saying that monetary authorities will have to buckle up in such situation. "If the Fed and the Bank of England hike rates this year or next year they may, if global recession scenario arises, be cutting rates again during the second half of 2016."
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