Economic outlook worsens on drop in exports, investment
Jane Cai 12 December 2008
The nation’s economic outlook has received another beating with leading economists forecasting growth could be half of that last year, well below the level needed to create jobs.
Goldman Sachs cut its forecast to 6 per cent from 7.5 per cent yesterday, the most bearish prediction so far, after data this week showed the first decline in mainland exports in seven years.
The bank said Hong Kong was expected to be far worse, with its economy contracting 3 per cent next year, compared with an estimated 3 per cent growth this year.
The global economic meltdown is turning into a political headache for Beijing, which needs to keep the economy humming at a reasonable pace to prevent social unrest. Eight per cent is the rate that economists widely believe is required to create enough jobs.
“The slowdown will be greater than that during the Asia financial crisis or the 2001 dotcom bust,” Goldman economists said in a research note. “The most important drivers for the slowdown are exports, fixed-asset investment, especially in the real estate sector, and inventory declines.”
The mainland reported a 2.2 per cent year-on-year drop in exports last month and a 17.9 per cent plunge in imports on Wednesday, heightening fears about the depth of the slowdown.
After five years of double-digit growth, the engine of the world’s fourth-largest economy cooled in the third quarter when gross domestic product rose only 9 per cent year on year amid the fallout of the global financial turmoil. The economy expanded 11.9 per cent last year and 10.4 per cent in the first half of this year.
To counter the slowdown, Beijing has cut interest rates and announced a 4 trillion yuan (HK$4.52 trillion) stimulus scheme to fund infrastructure and budget housing construction, and other programmes.
But ratings agency Moody’s Investors Service said even that would not effectively stop the economic sluggishness.
“The fiscal stimulus programme will not likely be able to offset the contraction in export growth from the unfolding global recession, nor will it be able to tackle the negative knock-on effects on the manufacturing sector,” said Thomas Byrne, Moody’s senior vice-president.
Mr. Byrne said growth was expected to range between 7 and 8 per cent next year, and then rebound to 8 to 9 per cent in 2010. “However, a more severe and protracted global recession could lower the growth to the 5-7 per cent range in 2009 and 2010.”
Gao Huiqing, a researcher with the State Information Centre, said the lack of new and substantial policy initiatives from the national economic work conference added to the pessimism.
The annual top leadership meeting concluded on Wednesday, with officials vowing to increase people’s income, expand consumption and cut taxes. “I don’t think the effect of the measures will be as strong as the financial tsunami,” Mr. Gao said.
“The first half of next year will be the worst, with gross domestic product growth of 6 to 7 per cent. The second half will be better. Full-year growth could be around 8 per cent.”
Goldman economists expect the stimulus package to start kicking in by the second quarter of next year and wield full influence in 2010.
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Goldman cuts mainland growth forecast to 6pc
Economic outlook worsens on drop in exports, investment
Jane Cai
12 December 2008
The nation’s economic outlook has received another beating with leading economists forecasting growth could be half of that last year, well below the level needed to create jobs.
Goldman Sachs cut its forecast to 6 per cent from 7.5 per cent yesterday, the most bearish prediction so far, after data this week showed the first decline in mainland exports in seven years.
The bank said Hong Kong was expected to be far worse, with its economy contracting 3 per cent next year, compared with an estimated 3 per cent growth this year.
The global economic meltdown is turning into a political headache for Beijing, which needs to keep the economy humming at a reasonable pace to prevent social unrest. Eight per cent is the rate that economists widely believe is required to create enough jobs.
“The slowdown will be greater than that during the Asia financial crisis or the 2001 dotcom bust,” Goldman economists said in a research note. “The most important drivers for the slowdown are exports, fixed-asset investment, especially in the real estate sector, and inventory declines.”
The mainland reported a 2.2 per cent year-on-year drop in exports last month and a 17.9 per cent plunge in imports on Wednesday, heightening fears about the depth of the slowdown.
After five years of double-digit growth, the engine of the world’s fourth-largest economy cooled in the third quarter when gross domestic product rose only 9 per cent year on year amid the fallout of the global financial turmoil. The economy expanded 11.9 per cent last year and 10.4 per cent in the first half of this year.
To counter the slowdown, Beijing has cut interest rates and announced a 4 trillion yuan (HK$4.52 trillion) stimulus scheme to fund infrastructure and budget housing construction, and other programmes.
But ratings agency Moody’s Investors Service said even that would not effectively stop the economic sluggishness.
“The fiscal stimulus programme will not likely be able to offset the contraction in export growth from the unfolding global recession, nor will it be able to tackle the negative knock-on effects on the manufacturing sector,” said Thomas Byrne, Moody’s senior vice-president.
Mr. Byrne said growth was expected to range between 7 and 8 per cent next year, and then rebound to 8 to 9 per cent in 2010. “However, a more severe and protracted global recession could lower the growth to the 5-7 per cent range in 2009 and 2010.”
Gao Huiqing, a researcher with the State Information Centre, said the lack of new and substantial policy initiatives from the national economic work conference added to the pessimism.
The annual top leadership meeting concluded on Wednesday, with officials vowing to increase people’s income, expand consumption and cut taxes. “I don’t think the effect of the measures will be as strong as the financial tsunami,” Mr. Gao said.
“The first half of next year will be the worst, with gross domestic product growth of 6 to 7 per cent. The second half will be better. Full-year growth could be around 8 per cent.”
Goldman economists expect the stimulus package to start kicking in by the second quarter of next year and wield full influence in 2010.
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