Catalyzing Consumption and Balancing Growth

A Healthy Path to Chinese Consumption Growth

In particular, there is a need to de link natural resource consumption from economic growth, so that growth in the economy does not lead to a concomitant growth in natural resource consumption.

And what it does essentially is to stimulate further consumption growth.

Decomposition estimates of GDP expenditure growth in 2004 indicate that Egypt, Jordan and Yemen experienced consumption led growth.

When Chinese growth eventually becomes less dependent on investment, growth rates in steel consumption can be expected to fall sharply.

So, with US consumption growth likely to be restrained, who will take America s place? Europe?

Only now, investment isn't going to be about the relentless and mindless pursuit of consumption growth.

But it did little to revive household consumption, which accounts for about 70 of the US economy. In fact, since early 2008, annualized growth in real consumer expenditure has averaged a mere 1.3 the most anemic period of consumption growth on record.

Stagnating middle class wages and family incomes are a major factor behind the US economy s slow recovery from the 2007 2009 recession, and pose a serious threat to long term growth and competitiveness. Household consumption accounts for more than two thirds of aggregate demand, and consumption growth depends on income growth for the bottom 90 .

Since the early 2000s, China has been the major driver of growth in steel consumption in the world.

Infrastructure investment will inevitably run up against the law of diminishing marginal returns, but consumption growth does not have a limit. Suppressing consumption thus suffocates future growth, and the share of household consumption in GDP has declined from 67 in the mid 1990 s to below 50 in recent years, with most of the decline reflecting the distortions created by government policies.

China would stimulate import potentials, conform to the trend of domestic consumption upgrading, take more active and effective measures, promote the increase of household income and cultivate high end consumption growth points.

But there remains the question of whether consumption share growth is sustainable that is, whether it is the result of income share growth or rising leverage. If it is supported by excessive leverage, effectively shifting future consumption to the present, China could face a significant slowdown or even a major crisis.

IMF's executive directors commended China for its steadfast determination to enable a more balanced and sustainable economic growth, and noticed that China's economic growth is increasingly driven by services and consumption.

Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.

For two years now, the growth rate of private consumption (measured at constant prices) has been negative 1 in 2002, 0.5 in 2003. Similar declines in real consumption are rare in industrial countries, as in bad years consumers typically draw on their savings to keep their consumption relatively constant.

Much has been made of domestic consumption as a driver of Chinese growth in the future. But Justin Lin, a former World Bank chief economist, has argued forcefully that investment will and should remain a key growth driver, and that domestic consumption in China s growth pattern should not be pushed beyond its natural limits into a high leverage model based on rising consumer debt.

Other Parties used vulnerability indices, such as population distribution and growth, urbanization, mortality and water consumption, to evaluate the vulnerability of human settlements.

As mentioned above, these flows not only sustain consumption in home countries but also support investment activities and lead to higher output growth.

China s 7 growth target, while subject to a number of challenges, is based on maintaining private consumption growth of around 8 (while recognizing that exports and investment will not grow as strongly as before), thereby allowing the consumption share of GDP to rise. More focus on innovation and creativity will be accompanied by strong real wage growth, provision of greater rights for urban migrants, and expansion of health care and pensions.

If resource allocation is skewed toward physical capital at the expense of accumulating human capital for which adequate consumption is indispensable economic growth would be more likely to slow than rise. So China should reduce the growth rate of investment and increase that of consumption, allowing the investment rate to settle at a more sustainable level.

US consumption, the single biggest driver of global growth, is surely headed to a lower level, on the back of weak housing prices, rising unemployment, and falling pension wealth. During the boom, US consumption rose to more than 70 of GDP.

What is missing is sufficient private consumption to power endogenous growth. To correct this, China needs to boost its people s sense of future financial security and affect a rise in private income commensurate with GDP growth.

Second, the financial system both banks and non bank institutions is severely damaged. Lack of robust credit growth will hamper private consumption and investment spending.

The major portion of the consumption growth is attributable to construction applications construction materials are estimated to account for over half of total steel demand.

The first factor is the relationship between oil prices and economic growth in the oil producing countries. Higher prices fuel higher growth in these countries, which, accompanied by a population boom, leads to higher domestic energy consumption.

Today s problems are compounded by a lack of sufficient private demand particularly household consumption in the advanced economies to compensate for demand losses stemming from austerity. During the last two decades, consumption drove these countries economic growth, reaching historically high GDP shares.

Personal savings rates collapsed, and credit and mortgage debt soared, as households attempted to keep pace with the consumption norms of the wealthy. For quite some time, growing income inequality did not slow consumption growth indeed, trickle down consumption pressures fostered more consumer spending, more debt, more bankruptcy, and more financial stress among middle and lower income households.

Rapid population growth, a dramatic increase in water consumption due to industrial, agricultural, and tourism growth, and rising standards of living will make the water issue even more important to the region s political stability than it is already.

The first reason is likely to create a long term drag on growth households need to deleverage and save more, which will constrain consumption for years.

Second, persistent weakness in consumption and GDP growth puts the US economy on a much weaker growth trajectory than that which is built into the government s long term budget estimates. The Congressional Budget Office is assuming 3.4 average growth in real GDP over the 2013 to 2016 period.

Reversion to that earlier share is likely as American consumers make the transition from the insanity of the boom to the sanity required of the bust. That spells subdued growth in US consumption for years to come with a predictably massive impact on global consumption.

The hard part of fully realizing potential growth is shifting the composition of domestic demand from consumption to investment without adding leverage. That means paying for it on the public sector side, via taxes and a reduction in household consumption (and in wealth accumulation).

We learned a lot from that experience. The short run impact as always occurs when oil prices rise quickly was to reduce growth by reducing consumption of other goods, because oil consumption does not adjust as quickly as that of other goods and services.

China has made a conscious strategic decision to alter its growth strategy. Its 12th Five Year Plan, enacted in March 2011, lays out a broad framework for a more balanced growth model that relies increasingly on domestic private consumption.

Shortfalls in investment eventually diminish growth and employment opportunities. The hard truth is that the flip side of the consumption led growth model that prevailed prior to the crisis has been deficient investment, particularly on the public sector side.

Apparent consumption of finished steel increased from 698 Mt. in 1996 to 967.9 Mt. in 2004, a growth of 38.7 per cent (9.2 per cent in 2004).

Activate rural consumption, guide the demand for healthy consumption.

We're actually measuring its oxygen consumption, its energy consumption.

Baseline as the average consumption in 1995, 1996, 1997, and 1998 Freeze on consumption in 2002 20 reduction in consumption in 2005 Phase out of consumption by 2015.

Baseline as the average consumption in 1995, 1996, 1997, and 1998 Freeze on consumption in 2002 20 reduction in consumption in 2005 Phase out of consumption by 2015.

Consumption

For most Americans, wages are the primary source of disposable income, which in turn drives personal consumption spending by far the largest component of aggregate demand. Over the past several decades, as growth in disposable income slowed, middle and lower income households turned to debt to sustain consumption.

If China can successfully rebalance its economy and shift to consumption based growth, its trading partners could benefit enormously from a huge retail market. But as long as China s import share of final consumption remains low, direct gains for exporters of consumer goods are likely to be small.