(CNN) - China's economy is entering uncharted territory, and that could spell trouble for the rest of the world.
After decades of sharp expansion, the Chinese economy is slowing down. Growth in 2018 is set to be the weakest since 1990. And 2019 looks even worse.
The world's second largest economy is feeling the effects of a darkening trade outlook and government attempts to rein in risky lending after a rapid rise in debt levels.
"The drivers of China's slowdown have yet to have their full impact on the economy, and the combination of both is unprecedented," analysts at Moody's wrote in a research note this month. "This creates a high degree of uncertainty and risk."
What happens in China matters for businesses and markets across the globe. It's the world's largest exporter of goods, sucking in materials from other countries in order to ship out iPhones, laptops, bulldozers and tons of other products.
The country's rapidly expanding middle-class has turned it into the biggest market on the planet for consumer goods like cars, smartphones and beer, generating billions in profits for companies like General Motors (GM) and Apple (AAPL).
"China has become the world's largest growth engine," said Rajiv Biswas, chief Asia-Pacific economist at research firm IHS Markit.
Fears about China's economic health have already rippled through financial markets. The country's benchmark stock index plunged into a bear market in June and is down 25% since the start of the year. The jitters have also affected markets in Europe and the United States.
What remains uncertain is the severity of the slowdown and how far the Chinese government will go in trying to soften its impact.
The big wild card is how the trade war between the United States and China, which began this year, will play out in 2019.
After imposing heavy new tariffs on hundreds of billions of dollars of goods, the two sides are now trying to negotiate a deal by the end of February. If they fail, tariffs are set to rise further.
Meanwhile, the economic hit from the trade war is expected to become more pronounced in China in the coming months, hurting exports and companies' profits.
"Export growth will come under pressure even if a further escalation in tariffs is avoided," Julian Evans-Pritchard, senior China economist at research firm Capital Economics, wrote in a note to clients this month.
Opinion is divided on whether the two governments will reach a lasting agreement in the next two months. Their expanding conflict is about far more than just trade. It spans China's stance on technology, intellectual property, investment, industrial policy and access to its markets.
Besides imposing tariffs, the US government has this year prevented two major Chinese tech firms from buying important American-made parts, stepped up scrutiny of foreign investments and sought the extradition of a top executive at Huawei, the Chinese company expected to lead the roll-out of 5G technology around the world.
"The path to an eventual truce between the two economic superpowers is likely to be bumpy and prolonged," analysts at investment firm Vanguard said in a report this month.
Along the way, they could do plenty more economic damage to one another.
"The trade war has the potential to hit growth significantly," said Gerard Burg, China economist at National Australia Bank. "But it all depends on how far both sides are willing to push."
The renewed negotiations show China's need "to achieve some sort of deal with the United States to buy badly-needed breathing space in a toughening economic climate," Diana Choyleva, chief economist at research firm Enodo Economics, wrote in a note to clients this month.
A crucial question for China is how its consumers respond to the uncertainty.
The country's extraordinary economic transformation in recent decades has pulled hundreds of millions of people out of poverty fueled a spending boom.
"Household consumption is what has driven the structural growth story in China," said Edmund Goh, a portfolio manager at Aberdeen Standard Investments in Shanghai. "It has defied a lot of the slowdown."
But cracks are starting to show.
Car sales have tanked in recent months, dealing a blow to global automakers like Volkswagen (VLKAF) and Ford (F). And retail spending in general has been slowing, according to official data.
Debt levels among Chinese consumers have been rising quickly, which could add to their reluctance to spend, Goh said.
China is likely to meet the difficulties facing the economy with its trademark approach: juicing activity through government stimulus.
It has already resorted to tax cuts, investments in infrastructure and looser monetary policy this year. Analysts expect more measures in 2019.
Officials could loosen restrictions on the country's red-hot real estate market to encourage developers to ramp up building activity, economists suggest.
But more stimulus measures risk undermining Beijing's efforts to address the deeper problems in the economy, including curbing the huge amounts of debt in the financial system, according to Iris Pang, China economist at investment bank ING.
"The government has shelved reform," she said, and will instead "focus on pro-growth measures."
The US Labor Department will release its December jobs report on Friday. Economists expect the report to show that the American economy added 178,000 jobs, according to a survey conducted by Refinitiv. The unemployment rate is forecast to remain at 3.7% -- a near-50-year low. And paychecks are expected to grow by 3%.
The American labor market is strong. Employers list more job openings than there are people to fill them. But economists predict economic growth will slow in 2019 as the effects of tax cuts and government spending wear off.
The economy added 155,000 jobs in November.
One trading day left in December
The stock market is on track for the worst December since 1931. Stocks have one more day left to make up some lost ground.
Stocks often finish December with rallies, but this isn't a typical December. Huge swings in both directions have sent investors' heads spinning. The Dow had its worst-ever Christmas Eve on Monday, only to post its best-ever point gain when trading resumed on Wednesday. Stocks were sharply lower for most of Thursday before roaring back at the close to finish the day in positive territory.
Missing data in shutdown
The partial government shutdown means businesses and investors could miss some important economic data reports.
The Department of Labor is funded through September 2019, so the monthly jobs report scheduled for Friday will remain on time. But both the Bureau of Economic Analysis and the Census Bureau, which belong to the Department of Commerce, have ceased providing updates and can only resume after Congress and the White House agree on a deal. The same is true of the Department of Agriculture, which produces data on crop production, prices and sales.
No major reports are due next week, but international trade figures for November are scheduled to be released on January 8. The Census Bureau had been planning to report on public pensions for the third quarter and residential home sales, as well as more international trade data.
Coming this week:
Monday: Last trading day of 2018
Tuesday: Markets closed for New Years Day
Wednesday: Chicago Purchasing Managers' Index
Thursday: ISM manufacturing index
Friday: Jobs report for December
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