Modelling a Secular Slowdown in China: An Exercise Using NiGEM

Main points

• Chinese GDP growth has slowed over the past decade and is likely to be slower into the future. But, as China now accounts for around 18 per cent of world GDP, a downturn of its economy would now have much larger effects on the global economy than it would have had a few decades ago.
• In this NiGEM Topical Feature, we use our Global Econometric Model (NiGEM) to examine the effects on China and the global economy of four factors that lead to lower Chinese GDP than in our baseline and show that the extent of spillovers depends on the source of the Chinese slowdown.
• We examine two short-term factors – arising from lower consumer spending and lower labour force participation – and two longer term factors: lower technical progress (productivity) and lower fertility.
• The effects of the simulated changes in these four factors are to lower the projected path of Chinese GDP and global GDP, resulting in the long-term level of GDP in China being about 2 per cent lower than otherwise and the level of global GDP around 0.2 per cent lower.

See our Global Economic Outlook