China’s economic growth for the past decade has been far above the world average, and significantly faster than key counterparts in Europe and the United States. However, the near 10% annual growth they have enjoyed may soon be coming to an end, if forecasts out of The Goldman Sachs Group Inc. (NYSE: GS) are correct.
Jim O’Neill, Chairman of Goldman Sachs Asset Management expects China’s economy to grow at a much slower pace of about seven percent over the next decade, but its stock market still has the most attractive upside among “BRIC” countries. As the world continues to grow more interconnected, economic growth in China is no longer guaranteed. The demand in the US and Europe continues to fall as the areas suffer from their own weak economies, and that contagion is a major issue to the export driven economies like China. China may now have to change their strategy, and seek a way to reinvent itself to remain competitive.
O’Neill told a news conference in Singapore “China is in the early stages of going from a long period where it was all about the quantity of growth, into an era where the focus is on the quality of growth.” O’Neill’s forecast is consistent with recent economic data coming out of China, which reflects a slowing GDP which has been dragged down due to decreased exports. O’Neill, who coined the term “BRICs” to describe the emerging countries of Brazil, Russia, India and China, said markets have not fully factored in the next decade of slower growth for the world’s second-largest economy. The Chinese economy has been predicated on exports, but may have to focus on building internal consumption demand if exports to the Western economies fall to a new plateau.
“It’s too soon to say a clear recovery is on the way. The Chinese economy still seems to be softening and it’s possible that the economy may be weaker in Q3 than it was in Q2,” O’Neill said. “There are not many signs yet of a big easing in financial conditions, which usually is a good leading indicator of momentum.” “We’re all used to the drug of 10 percent growth and those days are behind us,” said O’Neill. China has grown at over 10% annually for nearly three decades, which many economists have worried would lead to overheating. Now though, GDP is driven so heavily by exports that as foreign markets endure economic contractions, their imports fall, directly hurting China’s economic growth.
