FXStreet (Delhi) – Research Team at RBS, suggests that the downside risks to China’s growth rate over the next few years are acute.
Key Quotes
“IMF (and consensus) forecasts assume that a seamless transition to a service sectorfriendly, consumption-driven growth model will unfold, partly thanks to a large drop in the domestic savings rate. However China’s socio-economic features and still-large pockets of excess capacity suggest that scenario is unlikely. The experiences of other Asian economies that have undergone a similar transition also suggest this forecast is very optimistic.
China’s investment rate will fall far more quickly than the savings rate. This will generate a higher current account surplus, much slower growth, and a weaker RMB. The challenges that face China’s policymakers will accordingly remain formidable.
A more protracted downturn in China’s economy will also continue to have implications for the pace of world trade growth, and for commodity exporters in particular. Further downward pressure on the RMB will generate additional deflationary pressure onto globally traded goods prices. And this will result in further complications for other central banks in their efforts to lift inflation. The re-cycling of China’s excess savings in the meantime should keep government bond markets in developed economies very well supported in the period ahead.”
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