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Tuesday, 7 October 2008
What Does a Recession in China Look Like?
UBS has lowered its forecast for China GDP growth to 8% for 2009. According to Reuters, “It is the second time in less than three months that UBS has lowered its forecast for Chinese GDP growth next year.”
UBS has lowered its forecast for China GDP growth to 8% for 2009. According to Reuters, “It is the second time in less than three months that UBS has lowered its forecast for Chinese GDP growth next year.”
Since China has been growing at a pace of over 10% a year for most of the last decade, an 8% increase would be quite a come down. It also raises the question of what a recession would look like in China. In the U.S., it is usually defined at two consecutive quarters of negative growth. This is a fancy way of saying the economy is shrinking.
In China, a recession might appear very different. It might only require a moderating of growth to put financial pressure on the middle class. The stock markets in China are already signalling trouble. The Shanghai Composite is off over 60% in less than a year.
If China’s expansion slows it will probably be because it is exporting fewer goods to the West where a number of large economies could be suffering and consumers could be in distress. China would not be able to bring as many people into its large cities to work in factories. That, in turn, could cut the purchase rate of items like cars and electronics. With fewer people relocating, the value of real estate could also fall.
In other words, the Chinese economy does not necessarily have to shrink to hurt a lot of businesses and workers in the country. The term “recession” may be relative.
1 comment:
What Does a Recession in China Look Like?
By Douglas McIntyre
6 October 2008
UBS has lowered its forecast for China GDP growth to 8% for 2009. According to Reuters, “It is the second time in less than three months that UBS has lowered its forecast for Chinese GDP growth next year.”
Since China has been growing at a pace of over 10% a year for most of the last decade, an 8% increase would be quite a come down. It also raises the question of what a recession would look like in China. In the U.S., it is usually defined at two consecutive quarters of negative growth. This is a fancy way of saying the economy is shrinking.
In China, a recession might appear very different. It might only require a moderating of growth to put financial pressure on the middle class. The stock markets in China are already signalling trouble. The Shanghai Composite is off over 60% in less than a year.
If China’s expansion slows it will probably be because it is exporting fewer goods to the West where a number of large economies could be suffering and consumers could be in distress. China would not be able to bring as many people into its large cities to work in factories. That, in turn, could cut the purchase rate of items like cars and electronics. With fewer people relocating, the value of real estate could also fall.
In other words, the Chinese economy does not necessarily have to shrink to hurt a lot of businesses and workers in the country. The term “recession” may be relative.
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