China is facing the challenge of deflation, with its gross domestic product deflator at minus 1.4 per cent. This poses challenges for the economy.
In 2002, Ben Bernanke, then a governor at the US Federal Reserve, gave a speech outlining the importance of keeping deflation at bay. He concluded: “Sustained deflation can be highly destructive to a modern economy and should be strongly resisted.” Such a warning might not seem pertinent for much of the world where central banks are arguably still fighting the battle against inflation. But in China , it seems highly relevant.
Unlike other major economies, China is facing the challenge of deflation. Its gross domestic product deflator — the broadest measure of prices, taking in all goods and services of a country — is at minus 1.4 per cent and has contracted for two consecutive quarters. Consequently, China’s nominal GDP growth was just 3.5 per cent in the third quarter, much lower than the 6.4 per cent of the US. A deflationary backdrop poses a few challenges. First, real rates after taking into account deflation will rise, increasing the burden on debtor
China Deflation Gross Domestic Product Economy
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