A deepening recession in Europe would significantly harm growth prospects in China, a major concern for the International Monetary Fund and the European Central Bank.
China's gross domestic product (GDP) figures are due and if economic growth falls below 8.7%, brokers expect a sharp fall-off in shares worldwide.
Rating agency Standard & Poor's at the weekend issued downgrades to nine European countries, underlying excessive debt levels and weak growth. China is Australia's largest trading partner and a slump of economic activity will hurt Australia, New Zealand's largest trading partner.
Craigs Investment Partners broker Peter McIntyre said markets might become unsettled if significantly worse growth rates were reported, suggesting the possibility of a harder, export-led downturn outside the control of China's central bank.
Growth of 8.7% would be the slowest since the second quarter of 2009. China's economy had been slowing for 10 consecutive quarters. Growth in the March 2012 quarter was forecast at 7.5% and for June, 7.6%.
"There is a rule of thumb that growth in China of 7.5% means the world is doing OK. Above 7.5%, the world is doing well. It is getting precariously close to that mark."
The biggest fear was that China would experience a "disorderly" correction to its property market. The central bank was stepping in to loosen credit controls to encourage banks to continue lending.
Warning signs about a slump in demand for China's manufactured goods had been issued and New Zealand should prepare for a backlash in demand for its commodities, Mr McIntyre said.
