Jan

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China’s 2009 GDP growth

January 29, 2009 | 3 Comments | Mark Crosby

The latest IMF forecasts show downward revisions to all countries and regions. The US and Europe are now predicted to have their worst post-war year as far as GDP growth goes, and emerging markets have seen their growth forecast revised down from 5.1% to 3.3%. Their is no forecast for Australia, which falls into the “other advanced economies” group. But with global growth now forecast to be about 5 percent below growth in recent years, it would seem very difficult for Australia to avoid negative growth in 2009. The interesting forecast for me, and of course critical to Australia’s prospects, was the forecast for China. Last October the IMF forecast China’s GDP would grow at 8% in 2009. Yesterday’s forecast for China was for 6.7% GDP growth this year. Last October the impact of declining global trade was already being felt in China, hence growth was forecast to be well below potential. But ongoing declines in share and property prices have led to further deterioration in that economy, particularly in the very important construction sector. More or less the population of Australia migrates from the rural areas to urban areas each year in China.These internal migrants require housing, and construction activity has been a very important driver of China’s economic growth. The decline in property prices, plus the impact of fewer urban jobs in the export sector which will probably mean a slowdown in internal migration, have combined to cause construction activity to grind to a halt.

I’m still very optimistic about China’s medium to longer term economic prospects, but I fear that this year might be even worse than the IMF predicts in China. The government’s stimulus package will put a floor on GDP growth, but very weak export and construction sectors will make achieving 6.7% growth a challenge. Their is still a risk to the downside in this forecast, and hence also a further risk to growth prospects in Australia this year.


Comments

3 Responses to “China’s 2009 GDP growth”

  1. Joe Yap on January 30th, 2009 10:05 am

    Hi Mark, hope you’re well. Been meaning to ask you – do you reckon a China recovery is possible without the US recovering from their housing bubble ?

  2. Mark Crosby on January 30th, 2009 10:27 am

    Yes and no! (Classic economist answer). As long as the US economy is in recession it will be difficult for China to return to “normal” growth of 9 or 10 percent. But the problem at the moment is the weakness in China’s construction sector. Most China watchers are thinking that China’s economy will be better next year even if the US doesn’t improve much. The IMF forecast was for 8% growth in China and 1.6% growth in the US in 2010. That seems reasonable to me, but there are downside risks to both forecasts.

  3. Sam on February 2nd, 2009 3:13 pm

    I think this is going to change the way chinese economy will move forward, the Government will change its export driven economy to one that is driven domestically. The 2 trillion that they have to dip into will help.  I don’t think China will produce huge surpluses in the future.