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For these four nations, 2012 is worse than the Great Recession

4. China

Stringer/Reuters
A worker frowns amidst dust inside an open-air plant that crushes rocks to produce construction materials in Aksu, Xinjiang Uighur Autonomous Region, China, in mid-September. China's economic slowdown is expected to reach its nadir this quarter, leaving growth for 2012 likely to fall below 8 percent, a level unseen since 1999, a Reuters poll showed.

This is the biggest surprise of all. The Great Recession cut China’s real GDP growth by a third – down to 9.2 percent in 2009, according to the IMF – before it rebounded. But China this year is growing at an even slower pace: 7.5 to 8.0 percent, according to various estimates.

Much of this decline is deliberate: Beijing tightened lending to try to tame inflation, which was pushing up food and housing prices; now, it’s trying to loosen some of its control to make sure growth doesn’t fall too far. In many ways, China is paying the price for having engineered its recovery from the recession with a huge stimulus. Housing prices have soared. All the loans have created the potential for bad debt.

“You have this credit bubble still hanging over the economy, so that limits the government’s ability to stimulate the economy,” says Todd Lee, senior director of global economics at IHS/Global Insight, an economic research firm in Lexington, Mass.

A growing number of analysts think China’s growth will decline even more as exports fall, especially those destined for recession-plagued Europe. “Things have become more precarious,” Mr. Lee says, but he’s holding to his forecast of 7.8 percent growth this year with a very mild recovery in 2013.

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Mark Sappenfield
Editor

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