Much is said about if and when China will shift, as would be expected after three decades of 10%-plus annual GDP growth, to a new phase of slower economic expansion. The International Monetary Fund suggests it may already have happened.
In its latest annual Regional Economic Outlook for Asia and the Pacific, it says that China’s trend growth peaked in 2006-07 at 11% and has been on the decline since. In other words what has happened to growth rates since is not the consequence of a cyclical slowdown caused by the global financial crisis but the start of a structural change to the economy. The IMF’s economists note that the same happened to India’s economy just shortly afterwards. Its trend growth peaked at 8%.
For both countries, the IMF says, the slowdown seems to have been driven largely by a decline in trend total factor productivity growth — broadly that they are getting less productivity gain from technological and process change — though to this Bystander that could be symptom as much as cause. The IMF says China’s medium-term trend growth is now 8%, the same, as it happens, as its forecast for GDP growth this year.
The Fund’s economists acknowledge that their methodology is intrinsically backward looking. That though lets them dodge the hard question, how much farther down the declining arc of trend growth is there to go?