China economy expected to slow to around 6 percent GDP growth

08 July 2019 3 min. read
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The Chinese economy is set to slow further this year, according to a forecast by McKinsey & Company, with projected growth of 6 to 6.2 percent.

Global strategy and management consulting giant McKinsey & Company is predicting the Chinese economy will this year slow to growth of around 6 percent, with the likely slowdown coming on the back of the government’s reduction of economic stimulus in the form of loans and a crackdown on shadow lending. Consumer sentiment remains strong, however, but spending could be impacted as business growth aligns with a wider slowdown.

The Chinese economy has been noted for its strong growth and resilience over the past decade, yet changes on the international stage, as well as internal shifts in economic policy, have resulted in worries about the prospect of longer-term national growth rates. As part of McKinsey’s global economic analysis, the firm recently cast an eye on China’s economic situation – taking in recent developments as well as future predictions.

Slowing growth of Chinese economy

Taking in a broad array of data, McKinsey’s ‘China Brief’ report highlights the relative slowdown in the GDP growth of the Chinese economy. This slowdown is further punctuated by a decline in the growth of major market segments, including smart-phone and automotive sales, and has resulted in some high-profile businesses warning about profits and the possibility of staff layoffs, notes the report.

However, even while there is a slowdown – the country’s overall economic growth remains momentous. Last year 6.5 percent was recorded – well above that of developed countries – which amounts to the whole Australian economy added. And consumers remain keen to upgrade their lives through more premium goods, while domestic insurgent brands are in particular growing at double their segment’s respective growth rates.

Still, the Chinese economy appears to be softening overall, with McKinsey’s analysis of 57 key economic indicators reflecting the country’s slowdown in GDP growth. Going into 2019, the economy is expected to soften further, with growth falling to between 6.2% and 6%. The firm notes that the slowdown could imperil businesses that are not able to function with a slower overall economy – which could have spill-on effects to the economy at large.

Slowing Chinese lending growth

While businesses face a less easy time as growth slows, consumer conditions too are expected to see some change. The country is projected to see spending increase by $6 trillion in the years to 2030 – around twice that of India and the ASEAN countries combined. And although a slowdown has occurred, with retail sales growth falling to 9 percent in 2018 from 10.2 percent the year previous, categories outside of automotive and cosmetics still registered strong growth.

Yet, while consumers remain relatively well-positioned, McKinsey notes that credit in China increasingly scarce. As part of an economic stimulation effort, large amounts of credit were made available over the past decade, which saw total debt to GDP increase from 120 percent in 2007 to 253 percent last year. Meanwhile, the effectiveness of the credit declined in the same period – with less positive economic outcome for each borrowed cent. As a result, the country has sought to roll back its lending.

The government has also sought to crack down on the country’s shadow banking system, while focusing on its deleveraging programme. With outstanding credit growth felling from 13 percent in 2017 to 7 percent in 2018, shadow banking for the same period fell from 13 percent growth to a 7 percent decline. The effect of the reduction in lending is likely to have a knock-on effect on the economy, with businesses less able to leverage themselves for growth. McKinsey concludes that the slowdown in the economy may reflect the reduction in lending, with the global trade spat between the US and China less of a culprit.