Chinese growth is set to stabilize in the coming months and will slow to 6 percent in the next decade, according to new research from Barclays.
With Chinese policymakers seemingly reluctant to adopt a more aggressive policy response, the current growth downturn is “as much structural in nature as cyclical,” analysts at Barclays wrote in a research note.
China’s growth potential rate has moderated from 10.4 percent in 2000-2010, to an estimated 8 percent over 2010-2020, and will slow further to 6 percent over 2020-2030, according to the note.
“The main purpose of the current cautious policy expansion is to let growth gradually settle around the new potential growth rate,” the analysts argued.
China’s gradual economic slowdown has come as industrial activity is weakening, especially in the base metal and industrial machinery sectors. There is some good news from activity picking up in the railway and property sectors, and financing for central government-supported infrastructure projects has also improved, according to the report.
Chinese policymakers focus too much on unemployment and inflation indicators to assess the success of their approach, with too many job losses implying below-potential growth and high inflation indicating above-potential growth.
China's economic growth forecast for 2012 was downgraded to 7.5 percent by rating agency Standard & Poor's (S&P) on Monday as the Asian tiger feels the burden of the on-going euro zone crisis and a slower-than-expected recovery in the U.S. The growth forecast for Hong Kong this year was also cut to 1.8 percent from the original 2.8 percent by S&P.
The lower forecast for Chinese growth reflects the lack of stimulus by the Chinese government, according to S&P. The International Monetary Fund in July lowered its 2012 growth forecast for China to 8 percent from 8.2 percent.
Signs that the Chinese dragon’s fire is cooling come at an already difficult time for the global economy as Europe’s economies have stalled, the U.S. economy is struggling with continuously high unemployment rates, and growth has started to falter in Brazil and India.
While in 2009 China was regarded to be the savior for the world economy after launching an aggressive stimulus program which allowed it to continue to move ahead, this time around hopes that the world’s second largest economy will provide much support for the world’s economic outlook have dampened.