A run of poor data and doubts about the effectiveness of the government’s stimulus plans have prompted us to cut our 2009 GDP growth forecast for China from 8% to 7%. Admittedly, the government’s response to the ongoing slowdown has been impressive, at least on paper. If it was able to follow through quickly on its proposed fiscal stimulus, which is heavily skewed towards increasing investment, then growth would not slow too much further. But we suspect that capacity constraints and foot-dragging by the local governments, state-run firms and state-owned banks that are expected to fund much of the expansion will prevent investment spending rising as quickly as needed to stabilise the economy. Unless the government steers more of its stimulus package to consumers, for example through tax cuts and increased income subsidies, we fear that the slowdown will gather pace.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services