China 2020 GDP forecasts left unchanged as size of Beijing stimulus disappoints
- China’s second quarter economic performance will be crucial to full-year growth forecasts, with a negative rate still possible
- Most economists expect further stimulus measures this year if economic output remains weak amid fallout from Covid-19
Economists have made few changes to Chinese growth forecasts for this year after Beijing announced details of a new stimulus plan, with many disappointed it was less aggressive than the support package implemented after the global financial crisis in 2008.
The world’s second largest economy is now widely expected to grow by between 1.5 per cent to 2.5 per cent in 2020, analysts said, with second quarter data crucial in forecasting annual growth given the uncertain outlook for consumer spending and exports.
Virtually all analysts contacted by the South China Morning Post expect Beijing to announce further fiscal support amid rising uncertainty in the US-China economic relationship and the potential for a second wave of coronavirus infections.
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Swiss bank UBS said on Monday it was leaving its 1.5 per cent growth forecast for China unchanged.
Growth in the current April-June quarter would improve on the first three months of the year, but remain negative, the bank said.
China’s fiscal stimulus this year was 4.8 trillion yuan (US$672.4 billion), equal to about 4.8 per cent of GDP, UBS estimated.
While the recovery of production has been good in this season, the recovery on the demand side has been slow – that is the main problem
Standard Chartered bank estimated the fiscal package to be slightly larger at 5.2 per cent of GDP. It would boost economic output by 3.2 percentage points this year, less than half the 8.1 percentage-point improvement that followed Beijing’s stimulus during the global financial crisis, the bank said.
Standard Chartered maintained its forecast that growth would slow to 2.5 per cent this year from 6.1 per cent in 2019. Growth slowed only marginally to 9.4 per cent in 2009 from 9.7 per cent in 2008 because of the larger stimulus.
Shen Jianguang, chief economist at JD Digits, said China’s second quarter economic performance would determine whether he would revise his 2020 forecast.
“It is questionable that the second quarter growth rate could reach 1 per cent to 2 per cent. While the recovery of production has been good in this season, the recovery on the demand side has been slow – that is the main problem,” he told the Post.
The size of the stimulus is insufficient to bring the economy back to a normal trajectory, hence the market is unlikely to revise their current forecasts about the annual growth rate
As part of its stimulus, Beijing announced plans to increase the central government’s fiscal deficit by 1 trillion yuan, issue 1 trillion yuan in special treasury bonds and increase the limit on local government special bond issuance by 1.6 trillion yuan.
This would create extra budget leeway to be used to contain the coronavirus and repair the economy.
This would not be enough to offset the 6.8 per cent contraction in the first quarter and offered little hope for a V-shaped recovery from the second quarter onwards, he said.
“The size of the stimulus is insufficient to bring the economy back to a normal trajectory, hence the market is unlikely to revise their current forecasts about the annual growth rate,” he wrote in a commentary piece published on Monday.
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Beijing may be keeping some of its powder dry until the Politburo meeting in the middle of the year, especially in the event US-China relations soured further, putting more pressure on China’s economy, Zhou said.
Lu Zhengwei, chief economist at the Industrial Bank in Shanghai, estimated China’s package was equal to about 8.51 per cent of GDP, close to the average level of 9 per cent among emerging economies. However, it is lower than the current US stimulus of about 10 per cent of economic output.
“Since no one knows how much effort we need, an intensity similar to that of other countries can show [China is] coordinating with global policies,” Lu said.
“When people evaluate the risks years later, viewed globally, China’s debt level will not be higher than other nations.”
Lu also expects the central bank to roll out more monetary policies to ensure the broad money supply rises from last year.
Shen, of JD Digits, agreed the government had left open a window for more fiscal policy stimulus this year.
Beijing may need to give exporters more support and increase relief for low and middle-income groups.
Huang Souhong, director of the State Council Research Office, which led the drafting of Premier Li’s work report, said the government would immediately improve its policy package for unanticipated economic changes.
“We haven't used up all our ammunition and we have ample room for follow-up tactics,” Huang said on Friday.
