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Wednesday, August 27, 2014

China Outlook: Expect Slower GDP Growth through 2018

ID-10066957China, once the mighty engine of globalization, is gradually seeing its growth throttle down and reflect patterns of a maturing economy. The Conference Board forecasts annual growth for China of 5.5 percent from 2013 to 2018 — a far cry from the raging double-digit figures of recent years.

In the third part of my look this week at economic forecasts for key regions, as indicated by numbers from the Conference Board, China is underperforming slightly this year from predictions. First-quarter GDP was 7.7 percent compared to the 7.9 percent rate many economists forecast. Key economic indicators in April were off, as well. With this in mind, it looks as if China won’t meet the initial 8 percent GDP growth that observers had pegged for 2013.

The Conference Board, instead, believes the country will see average growth rates of 7.5 percent this year and next, and then several years of 5.5 percent annual increases. The board says that “China’s slowdown is structural rather than cyclical” and companies doing business there “should expect growth to gradually … weaken over the coming years.”

There are examples of the impact the slowdown is having on the economy. Through April, for example, fiscal revenue growth decreased to 6.7 percent compared to 12.5 percent in the same period last year. The Conference Board blames this on weak domestic and export growth.

Earlier this month, China’s government abolished a number of regulations in an effort to simplify foreign direct investment. Foreign exchange movement into the country has been strong, but some of this reflects efforts by Chinese companies to over-invoice shipments to Hong Kong, which are paid in dollars, and then converted to the higher-yielding local currency.

Tomorrow, we’ll look at developments in other countries that are vital parts of the global supply chain. Meanwhile, see my reports on the global outlook as well as Europe’s forecast.


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