With China’s economy in the midst of a major slowdown, the future is now in the balance, says economist Brett Harkness.
With China’s economic slowdown set to last for years, a number of economists believe the world economy is set to face its worst period since the Great Depression.
For some, this would mean a dramatic rise in unemployment, while others predict it will also mean a huge jump in consumer spending and economic growth.
For many economists, the real question is: is it worth it?
It is, and so it is the question that Harknesses latest book, The Price of the Future, has grappled with.
The author argues that it is too early to be too pessimistic about the prospects of China’s future.
“The fundamentals are not in a terrible place for China’s long-term growth, but we’re only a year out from a period of low inflation,” he writes.
His predictions, which are backed by extensive data, are backed up by some of the world’s best-known economists, including the Nobel Prize-winning economist Joseph Stiglitz and the Nobel Laureate Angus Deaton.
China’s GDP growth is projected to be 0.6% this year, compared to 3.6%, for the US economy.
If this rate of growth is sustained, it would be the lowest for the world in decades.
Harkness says that despite the pessimism of some, China’s prospects are very bright, and the economy is very much in a “good place” to grow.
“If you have any doubts about China’s potential to do well, then you’re probably living in a bubble,” he says.
As for the rest of the globe, China is predicted to grow at 1.2% this years, followed by the US at 1%, Japan at 1% and Europe at 1%.
“China is doing well.
China is not going to be able to sustain that growth indefinitely, so we have to expect the world to be much worse off than it was a year ago,” Harkings book says.
Harkings is not alone in his optimism.
In a recent article in the Wall Street Journal, former Federal Reserve Chairman Ben Bernanke, now at Columbia University, predicted that China’s GDP could grow by 3.5% in 2019.
But he warned that the world was unlikely to reach the 2% level that would enable China to grow as quickly as it wants.
Even China’s largest state-owned investment bank, China National Petroleum Corporation, says that it cannot predict the future, and that the pace of growth could be slower than that forecast by the central bank.
So, where is the evidence that China will actually do better?
While Harkons book does have a number: he argues that if China’s growth rate keeps going down, then the world is likely to be in for a bad period, and this will result in a further slowdown in growth, a contraction in consumer demand, and even an increase in unemployment.
This will likely make life difficult for many of China, as China’s export market is already in a slump and the country has to import a lot of goods to stay competitive, he argues.
“In other words, a slowdown in China’s expansion, by itself, will be a major drag on growth in the world,” he warns.
And what is the long-run economic impact of a slowing China?
Harks book has found that China has seen its economic growth fall from 9% in 2020 to 2.6%.
The US, which was China’s biggest market, has seen it fall from 4% to 3%.
China is also projected to shrink the global economy by almost 3% by 2025, the biggest decline since World War II.
What do economists say about this?
Economists generally agree that China is already slowing down, but there are a number who are sceptical.
James Tobin of the Peterson Institute for International Economics argues that China should be more optimistic, and suggests that its slow economic growth is a sign that China needs to get back to more sustainable growth patterns.
A few other economists, however, argue that it may be more important to focus on what happens now rather than in the future.
The IMF has warned that China could be in a long-running “economic emergency” if it continues to do nothing.
“The world will need to respond to the Chinese slowdown with measures to reduce the risks of recessions and depressions in the coming years,” it said.
That sounds ominous, but economists say that there is no reason to panic.
It would take a big adjustment to China’s financial system to slow the economy, and a big reduction in spending to bring it back to growth.
With such an abrupt slowdown in economic growth, it may not be a very realistic expectation to see the Chinese economy grow as much as it did last year.
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