The Big Issues for 2018 | Part 8 – The ‘slowdown’ of the Chinese economy

How will the ‘slowdown’ of the Chinese economy affect Australia’s economy?

That’s a question asked in Commsec’s  “The Big Issues” report – which highlights the issues that are expected to influence our economy over the next 12 months.

Every economy that progresses from a ‘developing’ economy to the ranks of an ‘advanced’ economy experiences slower rates of key variables like production, investment and retail spending. 29081526_l

There is a ramp up phase as the economy lifts to join the ranks of other ‘advanced’ nations then a slowdown as the economy matures.

From 2000-2013 Chinese industrial production grew at an average annual rate of 13.8 per cent.

Since 2013 the growth rate has halved – averaging 6.8 per cent.

Indeed, this year the growth rate has averaged just 6.6 per cent.

Interestingly, from 2000-2013 retail sales also grew at an average annual rate near 14 per cent.

But since 2013, growth has eased only to 10.9 per cent, reflecting the Government’s preference for an economy to be driven by the household sector 

than exports or the industrial sector.

The problem with a seemingly ‘natural’ transition from growth to maturity, is that some observers misrepresent what is going on, and that can affect investor behaviour.

In early 2016 the headlines read that China had experienced the slowest economic growth in 25 years.

At the start of 2017, again the headlines read that Chinese growth had slipped to the slowest pace in 26 years.

In 2017 the International Monetary Fund (IMF) tips the economy to grow by 6.8 per cent, actually marginally up from 6.7 per cent in 2016.

So perhaps the media will be looking for a new story to write.

The IMF expects the Chinese economy to grow by 6.5 per cent in 2018 before slowing further in coming years to grow by 5.8 per cent in 2022.

It is important to note that Japan averaged 10 per cent GDP growth from 1958-1970. china-real-estate

In the following 13-year period it averaged growth of 4 per cent.

Although it is important to note that the economy grew 6.8 per cent in 1988 and then 5.3 per cent in 1989 before growth slowed down to rates more in line with North American and European ‘advanced’ nations.

It is clearly in Australia’s interests to have a strong Chinese economy so the nation will no doubt feature as one of the Big Issues in years to come.Article08 Chart01Article08 Chart02Article08 Chart03Article08 Chart04

Watch your inbox tomorrow for the last article in this series.

You may also be interested in reading the other articles in this series:

Part 1 – The Economic State of Play

Part 2 – How long will inflation stay low?

Part 3 – The disconnect between jobs and wages

Part 4 – Housing: Hard or soft landing?

Part 5 – Infrastructure

Part 6 – The economic benefit of lower taxes

 Part 7 – Consumer debt

Source: CommSec Big Issue Report 2018

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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au


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