China’s Slowdown and Rebalancing: Potential Growth and Poverty Impacts on Sub-Saharan Africa

This paper explores the economic impacts of two related tracks of China’s expected transformation – economic slowdown and rebalancing away from investment towards consumption - and estimates the spillovers for the rest of the world with a special focus on Sub-Saharan African countries. We find that an average annual slowdown of GDP in China of 1 percent over 2016-2030 is expected to result in a decline of GDP in Sub-Saharan Africa by 1.1 percent and globally by 0.6 percent relative to the past trends scenario by 2030. However, if China’s transformation also entails substantial rebalancing, the negative income effects of the economic slowdown could be offset by the positive changes brought along by rebalancing through higher overall imports by China and positive terms of trade effects for its trading partners. If global supply responds positively to the shifts in relative prices and the new sources of consumer demand from China, a substantial rebalancing in China could have an overall favorable impact on the global economy. Economic growth could turn positive and higher on average by 6 percent in SSA and 5.5 percent globally as compared to the past trends scenario. Finally, rebalancing reduces the prevalence of poverty in SSA compared with the isolated negative effects of China’s slowdown, which slightly increases the incidence of poverty. Overall, China’s slowdown and rebalancing combined are estimated to increase GDP in SSA by 4.7 percent by 2030 and reduce poverty, but the extent of this varies by country.