China officially clipped its growth target early Thursday, cutting its expectation from 7.5% to “around 7%”. The world’s biggest developing economy has already been slowing down: Growth in 2014 was 7.4%, the lowest since 1990.
Barclays economists said they still expect the risks to that target are to the downside, with a lengthy shopping list of potential problems for Beijing. Here’s what they said in a recent note:
We see downside risks to our GDP growth forecasts of 7.0% for 2015 and 6.6% for 2016…
The housing market correction and high levels of industry excess capacity will continue to weigh on growth, while monetary and fiscal policies are constrained by concerns about elevated debt levels, large contingent fiscal liabilities, the potential for a financial crisis, and long-term sustainability.
China’s debt situation is particularly scary with low growth and low inflation – credit that would have been easy to pay back with the double-digit growth China enjoyed until recently is now looking much more challenging.
But there’s an major economy elsewhere in Asia coming into its own at the moment. India is the continent’s new growth star: Delhi’s growth targets are now significantly higher than China’s, at 8-8.5% for 2015 and 2016, announced in the country’s latest budget a week ago.
If these forecasts are accurate, India will be recording faster GDP growth than China for the first time in the 21st century. If China keeps slowing down and India holds its current pace, it could be the first sustained period in modern history.
There’s no guarantee that Indian Prime Minister Narendra Modi, a reform-pushing Hindu nationalist, will be able to spur significant and entrenched growth.
The Indian economy has been a constant under-performer and even solid growth will leave it significantly smaller than China. But people are now more optimistic about India than they have been in years – while pessimism about China is still growing.