Goldman see China sustaining about 7% GDP Growth until 2019

Goldman Sachs today cut its 2015 GDP growth forecast from 7.6% to 7.1% but left its 2014 forecast of 7.3% unchanged, saying Beijing recognizes the 7.5% growth target is not sustainable in the long-run.

Using the classical three-factor GDP growth model, Goldman said “China’s potential growth would gradually slow to just over 7% over the next five years.”

The IMF says China will grow well above 7% in 2015.

In economics, there are three factors that contribute to economic growth: labor growth, capital growth and technological advance. Labor growth in China is set to slow. The Chinese society is aging rapidly and the younger generation chooses not to pop out more babies even though Beijing has relaxed its one-child policy. Capital accumulation can only go so far as well and “the current pace of debt accumulation is unlikely to be sustainable in the long term.” As for technological advance, China has already played much of the “‘catch-up’ given the shrinking gap with the highest-productivity nations.”

The IMF also said the Philippines could sustain its current growth profile of 6% or higher, and that it could have a slightly higher budget deficit than its target of 2% of GDP.

SOURCE: IMF, Barrons, Goldman Sachs

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