China s GDP growth fell dramatically, owing to the collapse of external demand.

In Europe, America's external deficit keeps the sole source of growth alive.

No nation, no people, ever experienced growth that sprang solely from external support.

If invested in infrastructure, education, and external financial assets, natural resource revenues can accelerate growth.

Most economists predict a healthy 5 annual growth rate in 2011, together with positive fiscal and external results.

Nonetheless, this may be the last time that China can escape an external shock with its growth intact.

However, economic growth and expectations are constantly threatened by inappropriate macroeconomic policies, poor economic management and external shocks.

Now GDP growth is slowing, investment is falling, the budget deficit is widening, and the external accounts are weakening.

Meanwhile, a highly interdependent and (now) less dynamic world economy has been limiting the scope for external growth drivers.

It moves economic growth away from a dangerous over reliance on external demand, while shifting support to untapped internal demand.

How can China ensure stable and sustainable growth in the face of significant internal and external challenges, including slowing medium and long term growth, rising labor costs, and growing inflationary pressure?

The impact on growth will almost certainly be negative, even if domestic demand compensates fully for the decline in external demand.

The positive growth outlook, following an estimated 5.1 GDP gain in 2007, is presented as a reliable defense against external contagion.

A vicious circle of public finance deficits, current account gaps, worsening external debt dynamics, and stagnating growth can then set in.

Despite some internal and external constraints, last year we achieved a record 6.27 per cent growth in our gross domestic product.

While trade was critical to growth, a number of other factors, both internal and external, must be addressed, including the level of ODA, especially in a climate of generally decreasing external finance to developing countries.

And yet reliance on external demand remains fundamentally unchanged, even as the contribution of net exports to GDP growth has turned negative.

Somewhat faster demand growth in Germany and a lower external surplus would help not only Germany s trade partners, but also German savers.

Half of India s growth has come from private consumption, and less than 10 from external demand by contrast, 65 of China s real GDP growth comes from exports, and only 25 from private consumption.

After the global economic crisis weakened external demand, which sustained China s unprecedented economic growth for three decades, the authorities agreed that internal demand, especially domestic consumption, must become the country s new growth engine.

But slower growth in China can continue to sustain development only if the economy s structure shifts from external toward internal demand, from manufacturing toward services, and from resource intensive to resource light growth.

Meanwhile, a highly interdependent and (now) less dynamic world economy has been limiting the scope for external growth drivers. Accordingly, even countries with sound balance sheets and manageable leverage have experienced a growth slowdown.

With significant elements of the global economy and external demand facing headwinds, China s acceptance (so far) of a growth slowdown, while its new growth engines kick in, is a good sign, in my view.

With domestic aggregate demand in short supply, the only functioning growth engine, external trade in goods and services, is not an employment engine.

It is necessary because persistently weak global growth is unlikely to provide the solid external demand for Chinese exports that it once did.

Faced with sluggish external demand, weak domestic consumption, rising labor costs, and low productivity, China depends excessively on investment to drive economic growth.

Growth must become more stable, with a consistently counter cyclical macroeconomic policy stance, prudent capital account management, and greater resilience to external shocks.

But now growth rates for Chinese exports and related indices in manufacturing have fallen, largely owing to weak external demand, especially in Europe.

Such figures have led many observers to believe that overall domestic demand must be low, leaving China dependent on external markets for growth.

Second, they will not be overly reliant on the world economy, and their engine of economic growth will be internal rather than external.

The third assumption is that the United Nations underestimated the flight of capital and the erosion of growth due to external debt servicing.

In countries like the euro zone members, a loss of external competitiveness, caused by tight monetary policy and a strong currency, erosion of long term comparative advantage relative to emerging markets, and wage growth in excess of productivity growth, impose further constraints on the resumption of growth.

Indeed, China s dilemma is emblematic of one of developing Asia s greatest challenges the need to tilt the growth model away from external toward internal demand.

Exports are an important part of the Chinese economy, and any global market fluctuation or external shock will certainly have an impact on overall growth.

Weak external demand is partly responsible for the falloff in growth, but internal factors namely, slowing investment and stagnating consumption are also holding back economic expansion.

Despite all the talk about the coming shift to internal demand, China remains heavily dependent on exports and external demand as major drivers of economic growth.

On the contrary, with their large external deficits, the PIIGS need a sharp depreciation to restore growth as they implement painful fiscal and other structural reforms.

Governments role will be different in countries like China, where officials will guide a shift from dependence on external sources of growth to more balanced demand.

Economic growth is expected to moderate in 2005 in all three countries if the external environment weakens and uncertainty remains about the sustainability of domestic demand.

Now more than ever, Germany must be persuaded that without its contribution in reviving growth and correcting external imbalances, the eurozone faces prolonged depression and certain collapse.

External

Hit by a monstrous external demand shock that sent world trade tumbling by a record 10.5 in 2009, China s export led growth quickly went from boom to bust.

With its huge domestic economy, China would never have been able to accumulate such an enormous external surplus if its growth had not been confined to such enterprises.

So long as external demand holds up and recent growth numbers from China and the US are positive in this regard Europe s exports should continue to perform well.

And so it has remained budgets are cut, growth falters, and periphery countries must engineer substantial real exchange rate devaluations to regain competitiveness and close their external deficits.