World Bank warns on China slowdown

A Chinese economic slowdown will hit Australia as iron ore prices tumble, the World Bank says.

The bank noted that Australia's growth pace had deteriorated sharply since the first quarter of 2014 as declining prices for key export commodities depressed mining investment and weakened the Australian dollar.

It predicted that a further slowdown in China, Australia's biggest trading partner, would affect Australia and its neighbours.

"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," the World Bank's East Asia and Pacific Economic Update predicted.

China's growth pace in 2014 was the weakest since 1990 but the World Bank says things are set to get worse - just a month after the Chinese government cut its growth target to seven per cent.

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.

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

"In China, as it shifts to a consumption-led, rather than an investment-led, growth model, the main challenge is to implement reforms that will ensure sustainable growth in the long run," the World Bank said.

The World Bank's chief economist for East Asia and the Pacific region, Sudhir Shetty, said many risks remained for East Asia Pacific region "both in the short and long run".

The gloomy prediction comes as federal Treasurer Joe Hockey forecast the iron ore price dropping to $35 a tonne, which could see commonwealth revenue fall by $25 billion over four years.