Oz tipped to suffer in China slowdown

China is a major buyer of Australian iron ore, which is used to make steel. Photo / File

China's worst economic slowdown in 25 years will hit Australia as iron ore prices tumble, says the World Bank.

One of the bank's top economists says a more severe moderation is possible in the economy of Australia's biggest trading partner.

Australia's growth pace had deteriorated sharply since the first quarter of 2014 as declining prices for key export commodities depressed mining investment, the World Bank noted.

China's growth in 2014 was the weakest since 1990 but the bank says things are set to get worse - just a month after the Chinese Government cut its growth target to 7 per cent.

"The significant negative impact on Australia and New Zealand, among the world's largest commodity suppliers, would lead to indirect spillovers on the Pacific Island countries, given their tight links through trade, investment and aid," its East Asia and Pacific Economic Update report predicted.

Chinese growth would ease from 7.4 per cent in 2014 to 7.1 per cent in 2015, 7 per cent in 2016 and 6.9 per cent in 2017.

"It is possible that the slowdown could be more dramatic," said Sudhir Shetty, the World Bank's chief economist for East Asia and the Pacific. "It's not likely ... but if it were to happen, it would clearly matter a lot for the economies in this region because they're very connected to China both in terms of investment flows as well as in terms of exports."

China is a major buyer of Australian iron ore, which is used to make steel.

The World Bank said China needed to implement reforms that would ensure sustainable, long-run growth as its economy shifted to a consumption-led, rather than an investment-led, growth model.

Its predictions were released as Australian Treasurer Joe Hockey forecast the iron ore price dropping to US$35 a tonne, which could see commonwealth revenue fall by A$25 billion over four years.

Official Chinese data also showed a 14.6 per cent drop in exports in the year to March, as imports fell by 12.3 per cent.

- AAP