Economic Growth 101


China will soon release full-year economic growth figures for 2017. Don’t be surprised if the headline number is 6.7%. After all, that is the target. Economic output tracked 6.9% above last year’s level throughout Q1 and Q2 of 2017, falling to 6.8% in Q3. With China’s leaders talking up the “quality” rather than the quantity of economic growth, it’s a safe bet that growth will be allowed to glide down toward the 6.7% target for the final quarter.

One of the reasons China’s quarterly growth figures are so eerily smooth is that China reports headline quarterly growth as a comparison to the same quarter in the previous year. Most other countries annualize each individual quarter’s rate of growth, producing the appearance of much greater quarterly variability.

Annualizing China’s quarterly growth numbers for the first three quarters of 2017 produces a much more reasonable quarterly track record. On an annualized basis, China’s real GDP growth rates for the first three quarters of 2017 were 5.7% for Q1, 7.4% for Q2, and 7.0% for Q3. Put those figures together, and China needs an annualized growth rate of 6.5% in Q3 to hit its overall target of 6.7% for the year.

And it just so happens that China’s full-year growth target for 2018 is also 6.5%. So expect China’s 2017 Q4 growth to come in at 1.6% for the quarter (equivalent to an annualized rate of 6.5%), down from 1.7% in Q3, putting China right on target to grow 6.7% for the full year 2017 and setting the pace for 6.5% in 2018. Simple.

China wasn’t always so good at hitting its growth targets. Just two years ago, in early 2016, China’s economy was going haywire. Exports were falling, business indictors were down, and consumer confidence was at an all-time low. The economy was reportedly still growing at 6.9%, but no one seemed to believe it. China seemed headed for its first recession in decades.

The solution? Fire the statistician.

He was sentenced to life in prison. Maybe something to try out here on some scoundrels.

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