China growth to slow to 5 percent over next year or so: London consultancy

October 31, 2014

China’s economic growth will slow sharply to 5 percent over the next year or so rather than close to 7 percent suggested by forecasts based on official statistics, according to a new indicator of growth momentum published by Fathom, a London-based consultancy.

“Before he became premier, Li Keqiang had described GDP figures as unreliable. He suggested some alternative indicators to gauge the true health of the overall economy,” wrote Yiannis Koutelidakis and Laura Eaton, analysts at Fathom.

“We have taken him at his word and put together our own China Momentum Indicator (CMI). It does not look good. It has dropped sharply, suggesting that growth is heading towards 5 percent over the next year or so. Indeed, it may already be there.”

In the latest Reuters poll of economists at major international banks around the world, forecasts for China growth in the current quarter ranged from a high of 7.6 percent to a low of 6.9 percent in what has become almost a universally incremental view on the pace of the slowdown. 

Based on that recent survey, growth is expected to average 7.1 percent next year and there is no forecast anywhere on the horizon to the end of next year for anything weaker than 6.5 percent. Third quarter growth was officially last reported at 7.3 percent, down from 7.5 percent in the second quarter.

Such modest forecast downgrades do not appear to reflect the real range of opinion or the degree of investor concern about how rapidly the world’s second largest economy has slowed in recent months, especially in housing and construction. That becomes all the more stark taken together with the sharp fall in crude oil prices over the past few weeks, which came in part because of worries over slowing demand from China. Crude oil is expected to remain weak.

China Momentum Indicator

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