Posted by: Bruce Einhorn on January 19, 2009
With Chinese New Year starting next week and worries rising about hard-hit factories in southern China shutting down for the holiday and not reopening afterwards, a new report out from Morgan Stanley shows just how precarious China’s economic situation now is. Morgan Stanley’s team of five analysts, led by Jenny Wu, says China endured a “freefall in [economic] activity” at the end of last year that caused a “sudden halt” to GDP growth, putting China on the brink of recession. Not just a period of slow growth that’s too weak to create the new jobs needed for the growing Chinese workforce but a real recession - two quarters of a shrinking economy. According to the Jan. 18 report, growth in the third quarter of 2008 was flat and fell a shocking 1.7% in the fourth quarter.
And don’t look for a speedy turnaround, the bank’s economists warn. “We expect the economy to get much worse before getting better,” they write. They’ve downgraded their GDP forecast from an already tepid (for China) 7.5% to just 5.5%. Not everyone is so bearish: For a less downbeat view on the Chinese economy, see comments from JP Morgan’s Jing Ulrich in this BusinessWeek story by my colleague Frederik Balfour last month.