BOFIT Forecast for China 2019-2021 / 2

Abstract

The slowdown in growth continues as China struggles with a shrinking labour force, ineffectual allocation of capital, an increasing role of the state in the economy and postponement of necessary structural reforms. Adding to this is the business cycle downturn and escalating trade tensions during the past year. Given China’s rising public-sector deficit and soaring debt ratio, any room for stimulus is likely to be limited. With unreliable official figures that often fail to capture economic trends, it is more challenging than ever to assess China’s actual economic conditions. Nevertheless, we expect China’s economic growth to slow this year by about one percentage point from 2018 and slow further in the next two years of our forecast period by just under one percentage point a year. The deteriorating financial positions of Chinese corporations and increasing financial market risks raise the likelihood of a more rapid slowdown in growth.