How is the world’s second largest economy doing? “The era of rapid economic growth is receding”

of China economic growth will continue to slow down between 2024 and 2026, Bofit, the Bank of Finland’s research institute for emerging economies, predicts in its latest forecast. According to the forecast, China’s gross domestic product (GDP) growth will remain at around four percent this year.

“China’s economic growth has slowed further this year due to both structural and cyclical factors. The authorities have launched support measures to strengthen the economy and correct the problems in the economy. It seems that the measures are not sufficient to stop the slowdown in economic growth”, says Bofit’s senior economist in the press release Juuso Kaaresvirta.

Next year, growth is expected to be around 3.5 percent, and in 2026 it would slow down to around 3 percent. According to Bofit, the growth rate will level off at these figures for a longer period of time.

In the first quarter of the current year, China’s GDP grew by 5.3 percent year-on-year, according to official figures. In the second quarter, growth slowed to 4.7 percent and in the third quarter to 4.6 percent.

An alternative estimate of the GDP development calculated by Bofit suggests that the real growth this year may have been clearly slower than the figures announced by China.

According to the forecast, China’s era of rapid economic growth is coming to an end and the country’s economy is slowing down to roughly the level of the average growth rate of the world economy.

“For a huge upper-middle-income economy like China, economic growth of 3 percent is a good reading,” the Bank of Finland’s press release says.

It is said that there is a lot of uncertainty associated with the forecast, and as a result of a stronger than current recovery, growth may also be stronger than expected.

As reasons the slowdown in growth is attributed to the structural problems of the Chinese economy, such as the reduction of the working-age population, the waste of resources and the transition to a slow consumption-driven growth model.

China’s economy remains exceptionally investment-driven compared to any other economy, with investments accounting for more than 40 percent of the country’s GDP.

According to the Bank of Finland, significant steps have not been taken to balance the structure of the economy, even though Chinese decision-makers have recognized this need over the years.

The structural problem has backfired on China in recent years, when real estate construction, which is very important to the economy, has been shrinking for three years already.

The confidence of Chinese households in the economy has sunk to the bottom, according to Bofit’s report.

Trust, which acts as an anchor for the economy, has been eroded by, among other things, the situation in the labor market, the strict corona restrictions in recent memory, and the continuous narrowing of freedom of speech. Youth unemployment, which has remained very high, also casts its shadow over the economy.

The report also highlights the tensions between China’s central and regional governments in economic policy as a problem. The framework of China’s current fiscal policy does not seem sustainable, because in the model, the central government and the regions collect the same amount of income, but the regions are responsible for the majority of expenditures.

Expiring the year’s bright spots for China have been the strongly increased export of goods. Even though Chinese products are subject to more and more restrictions such as tariffs in Western countries, Bofit expects the impact of the measures on Chinese exports to remain minimal.

Studies have found that Chinese products move to Western countries more and more through third countries, despite the tightening of bilateral relations and restrictions.

Bofit also sees a positive trend in some economic reforms. For example, China has finally decided to raise its retirement age, which had been expected for a long time due to the continuous increase in life expectancy and the rapid aging of the population.

The reform will proceed in such a way that in 2040 the retirement age for men will be 63 years instead of the former 60, and for women, depending on the field, either 58 or 55 years instead of the current 55 and 50.

China’s international relations are predicted to remain strained at least until 2026, and they may even weaken significantly from the current ones.

According to Bofit, the uncertainty of China’s economic statistics has been increased by the concentration of power in one person, the president Xi Jinpingin in the reign, which increases the possibility of errors. According to the Bank of Finland, the Chinese authorities are under great pressure to show economic growth figures in line with political goals.