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Harvard’s Rogoff explains why China has become a ‘problem place’

Heidi Chung
Reporter

Kenneth Rogoff, public policy and economics professor at Harvard, thinks China is becoming a real problem.

“If we want to talk about a problem place, it’s China. It’s clearly China,” Rogoff told Yahoo Finance at the World Economic Forum in Davos, Switzerland. “There’s a slowdown going on in China that’s not demand driven. It’s a slowdown coming from the fact that they’re having a productivity slowdown.”

According to official data released by Beijing, China’s economy grew at a rate of 6.4% from a year earlier, the slowest pace in a decade. For the full year of 2018, China’s economy saw 6.6% growth, the slowest pace in 28 years.

As several American companies, including FedEx (FDX), Apple (AAPL) and American Airlines (AAL), warned earlier this month that China’s economic slowdown is weighing on revenue outlook for Q1, investors have been increasingly concerned that China’s economic woes could spill over to the U.S.

However, Rogoff argues that the U.S. economy is actually doing relatively well considering the various threats attempting to derail growth. “[In] the United States, the economy is doing okay. If the shutdown lasts another year, we won’t be doing okay,” Rogoff said. “But we’re doing certain things like the trade war, the shutdown, which are counterproductive, but overall the economy is doing well.”

In terms of the long-term effects of the partial government shutdown, Rogoff illustrated that government shutdowns are like natural disasters in that while the effects are awful, the macroeconomic effects are minimal. “Having the shutdown is really parallel to a natural disaster. Natural disasters are awful, earthquakes, a flood, it’s miserable, we need to give help. But the macroeconomic effects tend to be pretty small,” Rogoff explained. “If it goes on and on and on then absolutely it could amplify, and we could see something more severe. If you ask me where we are on that curve, I think we’re a ways from the sky falling in, but i don’t know what the end will be either.”

For more of Yahoo Finance’s complete coverage of the World Economic Forum in Davos, Switzerlandclick here.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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