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China’s growth surprises on the downside

David Dollar's picture

Although exports have slowed down, they contributed to China's GDP growth in 2008. But in this gloomy global economy, some factories will close and workers will lose jobs as it slows down further.
China’s growth rate in the third quarter fell to 9.0%, the lowest rate since the SARS crisis in 2003. Everyone expected that the global slowdown and disruption from the Olympics would take some of the froth off China’s economy. But the median forecast among specialists who follow China was 9.7%, so it is fair to say that the drop was a big surprise.

The details of the third quarter report provided some good news. Exports are slowing gradually, but still contributed to the GDP growth in 2008. Retail sales growth hit its highest level in nine years and was at 18% in real terms in September. So far, Chinese consumption is holding up. And the easing of inflation to under 5% means that the government has scope to loosen monetary and fiscal policy. The government is planning to respond to the potential for further growth declines with accelerated spending on reconstruction of the earthquake-affected areas and with infrastructure projects more generally.