Friday, February 24, 2012

China is slowly succumbing to global recession pressures

The Chinese economy which had withstood all the global crisis situations over the last twenty five years is now showing signs of yielding to the current world recessionary pressures. Latest quarterly GDP growth rate trends, factory output data by various rating agencies indicate the Chinese economic growth rate is coming down from its traditional dragon figure of nearly 9%.  
Bloomberg has estimated Chinese growth rate for 2012 at around 7.5%, compared to 8% estimate it prepared for the crisis year of 2008.
Besides slowing trade and growth, few other macroeconomic problems are there for the Chinese regulators and the government to deal with right now. Steadily increasing inflation, heating real estate sector, mounting NPAs in the banking system all are to be corrected.
Perhaps the bad sign as far as the Chinese economy is concerned is the declining trade (export) trends. Understandably, the main reason for China’s below par performance is the declining demand from West. The two super consumers of Chinese commodities- the US and Europe are in trouble with declining GDP growth.  This means that in the coming years, shrinking export may pull back Chinese economic growth.
The present twin syndrome of shrinking export and growth may be an indicator of the future for China. Commerce Minister Chen Deming cautioned that the government is not optimistic about trade outlook in the background of decelerated trade data for January.
Recession in the west partly explains slowdown in China. Along with that, a notable factor is China’s inability to construct domestic demand quickly to compensate declining foreign demand from the West.

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