Big Growth Comeback Not in the Cards for China

Bob Johnson: This week's chart of the week features China's GDP growth forecast. We go back all the way to 2010 to IMF documents showing those forecasts, and each one's a five-year forecast. The very top line is a forecast for 2010-15; the long bottom line is for 2014-19. Then, there is also a brief segment on the graph showing the most recent update, which is only a two-year update.

Looking at the data, there are two things to take away from it. One is that China's growth rate has slowed and slowed dramatically. The second takeaway is that the forecasts for Chinese growth have always been overly optimistic and always tend to come down in the following year--hence, the lines each year get lower and lower.

First of all, turning to the actual data, China was growing as fast as 10% in 2010. Now, we're thinking, in the out-year periods, [China] can slow to as low as 6% to 6.5%--so, clearly a much lower growth rate than we were all thinking. Certainly, demographics and the one-child policy and the slowing growth of the labor force are really holding things back. The real estate market has been rough, and China's policy of shifting from a more export and infrastructure build to a consumption-growing economy has really hurt the data as well.

But also, you can see that the forecasts have been equally as wrong. I think people have just assumed that China is going to get back to its old growth rate at some point, and they kind of just extrapolate that trend. Instead, we've seen the demographics go more and more to work, and we've seen that growth rate come down. I think if we look forward, the demographics will continue to weigh on the numbers. I think the forecasts for 2019 are still way too optimistic. I think it will grow something like 3% to 5% by the out years, instead of the 6% to 6.5% that they envision on this chart from the IMF.