Author: ZHANG Wenlang, ZHOU Peng and HUANG Yadong 

As China is in the second half of the financial cycle, economic growth has slowed, and market forecasts for China’s economic growth have been revised down several times. The evolution of China's potential growth, i.e., the economy’s sustainable rate of growth, has drawn attention. We believe the conventional framework under which inflation is used to measure the sustainability of economic growth tends to overestimate the potential growth in the first half of the financial cycle but underestimate it in the second half. That is to say, China's potential growth rate could be higher than the estimates made under the conventional framework.

Breaking free from conventional thinking to estimate potential output