China’s GDP would grow an average 4.5 percent over this decade, according to a new forecast by Oxford Economics, meaning China would take longer than other Asian economies, such as Taiwan and South Korea, to catch up with living standards in the developed world.
Annual growth would further slow to about 3 percent on average between 2030 and 2040, according to the baseline forecast by lead economist Adam Slater.
China’s actual economic growth could fall short of that baseline forecast due to worse-than-expected demographic challenges, possible decoupling from the US and allies, mishandling of financial risks or a prolonged real-estate slump, Oxford Economics said in a report.
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Other economists have also made similar projections, with Bloomberg Economics forecasting China’s economy would grow at an average pace of 4.6 percent this decade.
The working-age population is likely to continue shrinking according to the forecast, meaning that GDP growth would be reliant on “continued heavy levels of investment and a relatively rapid pace of productivity growth,” the Oxford report said.
China’s productivity growth has already slowed, but would remain high relative to other emerging economies, the baseline forecast showed.
However, trade and especially technological decoupling from China by the US and allies could cut 0.3 to 0.6 percentage points per year from growth by slowing productivity gains, the note added.
The majority of China’s growth over the next decade would be driven by increasing the stock of physical capital, the report said.
China might struggle to maintain its current high levels of physical investment due to rising debt levels, it added.
“Should investment rates start to decrease towards more normal levels, then growth could slump if there is not a dramatic improvement in investment efficiency,” Slater said.
One risk to the forecast comes from China’s real-estate slump, the report said.
“A steep downturn in the sector could have a big negative impact on growth for several years,” it said.
The forecast implies China’s GDP would overtake the US’ in US dollars at current exchange rates by about 2033, Slater said.
However, the baseline forecast suggests the Chinese government would not meet its stated goal of doubling GDP from 2020 levels by 2035, as that would require annual growth averaging about 4.7 percent over that period.
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