BOFIT Forecast for China 2009-2011

The global economic downturn has sharply reduced China s economic growth. As rapid redeployment of the freed-up capacity of export industries to the domestic market is unlikely, China must deal with the changed circumstances through broad monetary and fiscal stimulus measures geared to boosting domestic consumer demand and investment. Even with the stimulus, however, China s overall economic growth is likely to decline to around 5 % this year. Although the country could potentially sustain higher growth, the poor outlook for exports over the next two years severely limits any quick recovery. Given the exceptional frailty of the world s economy, the ongoing efforts of China s leaders to adjust economic policy and uncertainties related to Chinese statistical data, any prognosis at the moment inherently contains extraordinary risks. Thus, we find it prudent to concentrate on the trends rather than precise figures.