How China can protect economic growth as world recession risks rise
- China’s shift towards more domestic-driven growth has helped shield its economy from the worst of the global downturn but it has to step up a gear
- All it needs is a four-pronged policy to lower interest rates, improve credit conditions, provide more fiscal reflation and maintain a competitive currency at the same time
The global economy has an uphill struggle to avoid recession over the next year. The war in Ukraine, the energy price spike, tighter monetary conditions and a slowdown in world trade are throwing growth projections into disarray.
Domestic-led growth should be sufficient to provide a reasonable forward momentum and the weak renminbi will ensure China’s exporters enjoy a competitive advantage. China is fortunate to have plenty of policy options to fall back on and it’s time for Beijing to step up a gear to secure the best outcome.
Despite this, the IMF seems relatively upbeat on China’s prospects, expecting gross domestic product to rise by 3.2 per cent this year and 4.4 per cent next year. But the economy is still operating below strength, with scope to do better.
Real incomes in China are being affected but nowhere near as badly as consumers in the United States and Europe, where the cost-of-living squeeze has been much more damaging, from higher headline inflation rates and wages failing to keep up.
Business confidence needs a bigger boost too, with the latest Caixin purchasing managers’ report for manufacturing showing sentiment dipping deeper into the territory of contracting economic activity, falling to 48.1 in September below the critical 50 boom-or-bust line.
These are big challenges but Beijing still has plenty of firepower to maintain good forward momentum. All it needs is a four-pronged policy to lower interest rates, improve credit conditions, provide more fiscal reflation and maintain a competitive currency at the same time.
Beijing can afford to do more on the fiscal front too, with extra deficit spending targeted to boost recovery. Even the renminbi, with its close-to-record lows against the US dollar, can do its bit for export-led growth.
In a stagnating global economy, China could offer investors a better measure of growth stability in turbulent times.
David Brown is the chief executive of New View Economics