The figures show that China’s GDP growth fell to 6.8% in the fourth quarter, down from 9% in the third quarter and is half of 13% growth rate in 2007. This implies that growth was virtually zero on a seasonally adjusted basis in the fourth quarter.

Industrial production has slowed even more sharply, growing by only 5.7% in the 12 months to December, compared with an 18% growth rate in last quarter of 2007. Chinese exports are likely to drop further in coming months as world demand shrinks. 2009 is expected to see first y-o-y decline in exports in past 25 years.

While forecasting GDP growth for any country economists take help from various criteria. One of the criteria is electricity output which is leads GDP growth as more electricity consumption eventually leads to higher GDP and decline in electricity output may mean that GDP is falling, In the graph, percentage growth in GDP and electricity output is shown. It can be easily seen that electricity output leads the GDP but magnifies rise of fall in GDP growth. By taking help of regression, economists have estimated that a negative 6 % growth in electricity output could convert to GDP growth in the range of 0-1 %.

Though this is not the only criteria, other criteria sush as export growth and its weight in the GDP, Housing growth indicator (which suffered a collapse due to slump in housing construction, caused by the government’s efforts to deflate a potential bubble) point even worse situation for China.

Measures taken by China

• On January 21st it announced extra spending of 850 billion Yuan over three years to improve health care and Infrastructure.
• From February, rural residents will get a 13% rebate on purchases of goods such as refrigerators, TVs and washing machines.
• Interest rates have also been cut five times between September and January
• Controls on bank lending have been scrapped. To help the property sector, minimum down-payments have been reduced from 30-40% of a home’s value to 20%, the transaction tax has been waived for properties held for at least two years, and more public housing is to be built.

Tags: China, Economics, Economy, Forecast, Forecasting, GDP Growth, Global Economy, International Markets

This entry was posted on Wednesday, January 28th, 2009 at 10:27 am and is filed under Economy, International. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.