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Flash: Will China ever discover a stable growth path? – Goldman Sachs

FXstreet.com (Barcelona) - According to the Economics Research Team at Goldman Sachs, “A more efficient use of surplus labor will more than offset the impact on growth from a modest decline of the working age population – further urbanization will be part of future growth.”

Urbanization process needs to improve, in order to deliver more efficient and balanced growth through productivity gains from city agglomeration, a decline in capital intensity as land prices better reflect market forces, a moderation in the household savings rate, helped by reforms to social safety nets. Using US cities as a benchmark, greater efficiency in Chinese cities has the potential to add 1ppt to real economic growth over the next decade. Investment-to-GDP share will decline and consumption-to-GDP share improve meaningfully with reforms.

Ultimately, urban housing construction will benefit from future income growth. The recent policy directions are promising and suggest that economic imbalances should gradually be corrected. “A more concentrated urban growth model would be positive for public transportation, utilities, water management and diversified consumption, and the burden on public finances would be lower.” the team adds.

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