SYDNEY (AFP) - A Chinese "hard landing" translating into five per cent growth would tip Australia into recession and send unemployment skyrocketing to 10 per cent, a Standard & Poor's report warned on Thursday.
Such a rapid deceleration in Australia's major trading partner, rated as an "unlikely" scenario by S&P, could also see the mining-powered economy lose its triple-A credit rating, the agency said.
"Renewed uncertainty surrounding China's economic outlook is casting a long shadow over Australia's own economic prospects," S&P said in a new report.
"The mining investment boom appears to have peaked, and Australia's GDP growth is slowing. Meanwhile, China's economy is also decelerating and concerns of a 'hard landing' have resurfaced."
S&P said its "base case" was for China's expansion to moderate to 7.3 per cent in calendar 2013 for the medium term, meaning 2.5 per cent growth and 5.7 per cent unemployment in Australia in 2013 and 2.9 per cent/6.0 per cent in 2014.
"We expect growth to be subdued in the near term, as mining investment peaks," S&P said.
"Non-mining sectors are unlikely to fill the gap left by the mining sector anytime soon."
But it also modeled a "medium landing" where China growth was 6.8 per cent and a "hard" scenario where it grew just 5.0 per cent, translating into 2014 GDP of 2.1 per cent for Australia or a 1.0 per cent contraction respectively.
The latter could trigger a recession and credit downgrade, the agency said.
Under a medium scenario, rated at 25-30 per cent likelihood, unemployment would be 6.5 per cent in Australia and 10.0 per cent were China to slow sharply.
Australian government data published on Thursday showed unemployment was at 5.7 per cent in July, unchanged from June, but the economy shed 10,200 jobs as a decade-long commodities investment boom peaks.
"Australia's exposure to commodity demand from Asia, and China in particular, was a saving grace during the global recession of 2009. But by the same token it has become Australia's Achilles' heel," the ratings giant said.
"Particularly while mining investment remains such a large share of the Australian economy, and other sectors continue to lack growth momentum, Australia remains highly sensitive to a sharp correction in China's economic growth."
Australia's central bank cut its official cash rate to an unprecedented 2.5 per cent this week in a bid to boost the non-mining areas of the economy.
The latest GDP data is due out on September 4.
The ruling Labour party, seeking re-election on September 7, downgraded its unemployment forecasts for 2013/14 this month from 5.75 per cent seen in the May budget to 6.25 per cent.