Macroscope | What to expect from China’s economy in 2020: a solid first half followed by a loss of steam

Better GDP data in the second half of 2019 and the ‘phase one’ trade deal bode well for China’s economic prospects in 2020

However, tight financial conditions as a result of Beijing’s deleveraging campaign and the import commitments under the trade deal will weaken growth in the second half of the year

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A woman works at a workshop manufacturing plastic woven materials in Suqian, Jiangsu province, China, in July 2019. Photo: Reuters

Published: 6:00am, 30 Jan 2020Updated: 6:25am, 30 Jan 2020

Global markets got off to a positive start in 2020, with risky assets hitting new highs. Two macro factors contributed to this strength: tentative signs of the global economy bottoming out and the US-China “phase one” trade deal helping to remove risks. Let’s examine both developments in the context of China.

First, the latest gross domestic product data showed that the Chinese economy stabilised at 6 per cent in the fourth quarter of 2019, arresting the persistent growth deceleration of the first three quarters of last year.

The services sector continued to deliver a solid performance, expanding at 6.9 per cent. But it was the acceleration of the industrial and manufacturing sector – to 5.7 per cent from 5.6 per cent – that accounted for most of the upside surprise in fourth-quarter GDP data.

The expenditure breakdown showed decent growth from consumption, while the investment contribution also improved. The balance of growth may shift modestly further in early 2020, but not enough to alter the structural trends in the economy.

A woman selects vegetables at a supermarket in Beijing on November 9, 2019. China recorded some growth in retail sales in the last quarter of 2019. Photo: EPA-EFE

More importantly, the GDP data confirmed the nascent recovery in manufacturing and industrial-sector activities, as evident in forward-looking indicators lately. Both the official and Caixin PMIs have been above 50 for a few months now, with the production indices firmly in expansionary territory.

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.css-1m2rp1p{color:#34b8b5;}Macroscope | What to expect from China’s economy in 2020: a solid first half followed by a loss of steam

Macroscope | What to expect from China’s economy in 2020: a solid first half followed by a loss of steam