China’s Slower Growth Outlook and its Impact on the Global Economy

Policymakers Expect Slower Growth in China

Policymakers are anticipating persistently slower growth in China, which could be even more sluggish than current consensus estimates. They view China’s transition from an infrastructure- and investment-led economy to a consumption-driven one as “difficult”.

Structural Crisis with Global Impact

Experts believe that the crisis in China is more structural than cyclical, and it is expected to have a significant impact on the global growth outlook. However, it may help alleviate some inflationary pressures as commodity prices cool down.

Growth Rate Predictions

• Former Bank of Japan (BOJ) board member Takahide Kiuchi expects China’s growth rate to decline to below 4%, or even below 3%, which could negatively impact the world economy.
• Another former BOJ board member, Goushi Kataoka, predicts a “severe future” for the Chinese economy, citing the distortion of domestic demand and supply due to a 0% inflation rate.

Weakening Services Activity and Economic Growth

China’s services activity expanded at its slowest pace in eight months in August, indicating weak demand and a struggling economy. Economic growth in 2022 was one of the worst in nearly half a century.

Risk for Europe and Global Economy

European Central Bank (ECB) governing council member Boris Vujcic sees a risk of negative external demand shock for Europe and the global economy due to China’s economic slowdown. He urges caution in dealing with the situation.

China’s Administration and Economic Dynamism

Austrian central bank chief Robert Holzmann believes that economic dynamism won’t return to China as long as its administration remains hesitant about the direction to move in.

Impact on Central Banks and Inflation

Lower commodity prices resulting from China’s cooling economy could be a silver lining for central banks in developed countries. These banks are preparing to wrap up their aggressive interest rate hiking cycle to combat inflation.

Revised Outlook and Lower Inflation Pressures

Reserve Bank of New Zealand (RBNZ) Deputy Governor Christian Hawkesby suggests that a more severe slowdown in China could lead to lower commodity prices, which would help cool off inflation pressures more quickly than expected.

The RBNZ has already factored in a subdued period for commodity prices in their projections, but a further slowdown in China would require a revised outlook.

Reporting by Divya Chowdhury and Savio Shetty in Mumbai, Lisa Mattackal and Mehnaz Yasmin in Bengaluru; editing by Mark Heinrich

Our Standards: The Thomson Reuters Trust Principles.

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