May 03, 2016

Even after rebuilding China's GDP, Conference Board believes China will contribute most world growth from 2018 onwards

The Conference Board estimates that by 2018, China’s contribution to global GDP will surpass that of the U.S. In other words, China’s economy will become more significant than America’s

This is based on the Conference Board reconstructing China's GDP. They use a bottom-up on a sector-by-sector basis, partly relying on official measures where they find those to be relatively unbiased, and partly constructing new estimates where we have concerns about the methodology of the published estimates. They feel the alternative GDP series provides a better description of China’s growth performance historically, and provides a better basis for projecting its growth going forward. They have discussed their alternative estimates at length with representatives from the academic and policy worlds in China and globally.

Over the past decade, thye have worked closely with Professor Harry X. Wu (Japan’s Hitotsubashi University) – to develop alternative growth and productivity estimates for China. Based on his latest work, as well as earlier studies he conducted in collaboration with the late Professor Angus Maddison (University of Groningen in the Netherlands), we have fully integrated Professor’s Wu alternative estimates into this year’s annual Global Economic Outlook

At the center of the historical debate on China’s growth performance has been whether growth during the reform period since 1978 can be primarily attributed to productivity growth or is mainly driven by factor accumulation. The new GDP series show that the growth contribution of capital to the economy has been much larger than the official estimates suggested, while the growth of total factor productivity (TFP) has been much weaker. This weakening in TFP growth is feeding into the underlying model for The Conference Board Global Economic Outlook, and puts China’s economy on a slowing trend for the medium term to 2025. However, they also find that China’s current growth performance, at 3.7 percent in 2015, is somewhat below their five-year trend estimate of 4.5 percent. Hence it is possible that the economy may see some temporary recovery in the next few years

Global GDP growth is now projected at 2.5 percent, which is 0.3 percentage point lower than their November outlook. The largest downward adjustments are seen in emerging markets, of which Brazil and Russia are the most pronounced, as their economic outlook has deteriorated more rapidly than they expected.

Uncertainty and pessimism have dominated the economic and business news in recent months. While at face value the mood seems justified as many negative factors (China’s financial gyrations, volatility in oil prices, and the further weakening of the US economy) are colluding, the recent developments by themselves do not yet signal an imminent global economic recession.

  • Growth rates of China, India and Southeast Asia are unlikely to see significant improvement in 2016 compared to last year.
  • Chinese growth in 2016 is expected to stay the same as that of 2015 at 3.7 percent (Alternative China GDP Series FAQ)
  • After adjusting for China’s overstated official growth rates, India has already overtaken China as the growth champion of the region, but we do not expect an improvement in India’s growth performance in 2016 relative to 2015.

SOURCE- Conference Board 2016 Global Economic Outlook

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