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Why Germany should worry about China woes

Anmar Frangoul | Special to CNBC.com
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Fear China negative feedback loop: Fund manager
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Fear China negative feedback loop: Fund manager

Germany's export relationship with China is something to keep a close eye on, Matthew Beesley, head of global equities at Henderson Global Investors, told CNBC Thursday.

"Spain is obviously growing very strongly, as is Ireland, but quite frankly in terms of contribution to euro zone gross domestic product (GDP) those two countries, along with Italy, are negligible – it's Germany and it's France we've got to watch," Beesley said.


An investor checks stock information at a brokerage house in Fuyang, China.
Reuters

"For Germany, 40 odd percent of the economy is export based," he said, adding that 10 percent of the country's export base was in China.

"You've got a few percentage points that are Chinese driven, and of the… one and a half percent in terms of euro zone growth that we might be hoping for, Germany is going to be providing about a third of that growth. So if we see an export driven slowdown impact on the German economy, that is undoubtedly going to take the edge off euro zone GDP."

Germany is Europe's biggest economy and a key driver behind growth in the region.

Beesley added that a weakening in export numbers for Germany would not matter so much as long as there wasn't a "precipitous decline."

"Italy, Spain, Ireland, even France improving is all clearly very helpful for the overall euro zone GDP picture, but that cannot offset a very aggressive decline in German GDP," he said.

Earlier on Thursday, data showed euro zone business activity accelerated at its fastest pace in more than four years in August.

Beesley said: "While China remains slowing – you know, Chinese growth maybe ends up being five percent – it's a non-issue, but right now we just don't quite know."

Beesley said that his biggest fear as an investor was that issues in China became "self-feeding," and that, "corporates back away from China because of what they're worried about might be coming down the pipe, and that becomes a negative feedback loop that starts impacting general business confidence."