China’s economy decelerated in the latest quarter but stronger spending by consumers who are emerging as an important pillar of growth has helped to avert a deeper downturn.
According to data just released, the world’s second-largest economy grew by 6.9% in the three months ended in September. This is the slowest since early 2009 in the aftermath of the global financial crisis. In the previous quarter China grew by 7%. Weakening manufacturing and trade have fueled concern in China about possible job losses and unrest. The communist government has cut interest rates five times since last November to boost growth, but nothing seems to be working.
In September, factory output growth slowed to 5.7% from the 6.1% growth of August. However the silver lining is that, retail sales grew at 10.9%, up from the 10.5% growth of July. E-commerce spending also leapt ahead, rising 36% in the third quarter over a year earlier. So clearly there is some demand, much to the delight of industry.
But the recent downturn is self-made to some extent, as China wants to re-adjust its economy to reduce dependency on foreign investments. However the decline has been too sharp, aided by weak demand for Chinese exports.
China’s slowdown has unnerved global markets and has held down worldwide economic growth, particularly the countries like Brazil and Australia that export raw materials to the Asian giant. This is why China’s economy and its growth prospects is being scrutinized around the world.
The decline in Chinese heavy industry and construction has depressed demand for oil, iron ore and other commodities, dragging on growth in Australia, Brazil and other supplier countries.
Last September, the US Federal Reserve delayed a long-anticipated increase in short-term American interest rates citing China’s slowdown and deteriorating global economic conditions.
Forecasters are saying that Beijing is likely to cut interest rates and take other steps to shore up growth.
The worst might not be over yet. The IMF expects growth to slow to 6.3% in 2016 and 6% in 2017.