BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/01
The slowing in China’s GDP growth is largely driven by weakening domestic demand. However, foreign demand is also expected to weaken as growth in China’s export markets is slowing and no peace in the current trade war with the US is on the horizon. China is expected to press ahead with some stimulus measures though a substantial debt overhang precludes any major stimulus programme.
Bloomberg’s compilation of economic forecasts see GDP growth slowing to the range of 6–6.5 % in 2019 and 6 % in 2020. The spread across forecasts is surprisingly narrow. If the forecast in economic growth materialises, China will achieve its target of doubling real 2010 GDP by 2020. Economic forecasts for China suffer from the unreliability of official GDP figures. When official GDP figures fail to reflect reality, forecasts are fundamentally flawed from the get-go.
Looking beyond the traditional business cycle, it is apparent that Chinese economic growth inevitably slows over the longer term. China’s population is aging quickly and the labour force is shrinking. Productivity gains are increasingly difficult to achieve and the structural evolution to a service economy makes productivity gains even harder to achieve. Increasing growth in fixed investment is particularly challenging as the investment ratio is already excessively high. The sheer size of the Chinese economy and environmental problems also hamper possibilities for high growth.