China GDP: economy set to confirm recovery from coronavirus, but new cases cloud outlook

China’s gross domestic product (GDP) is expected to have grown by 2.1 per cent in 2020, the lowest growth rate in 44 years
New coronavirus cases in northern China and the uncertain outlook for the policies of the new US government raise questions about the outlook for 2021

China GDP

Frank Tangin Beijing

Published: 6:15pm, 15 Jan 2021

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China is expected to confirm on Monday that it was the world’s first major economy to overcome the damage caused by the coronavirus pandemic and post positive growth for 2020, although the world’s second largest economy still faces a bumpy road ahead.

Last year’s gross domestic product (GDP) is expected to have grown by 2.1 per cent, according to a Bloomberg poll of economists, a sharp decline from a revised 6.0 per cent in 2019, and the lowest growth rate in 44 years.

However, even weak growth is a rare bright spot compared to the estimated contractions of 4.3 per cent in the United States and 8.3 per cent in the Eurozone, according to estimates from the International Monetary Fund (IMF).

But the impact of the resurgence of coronavirus cases in large sections of northern China this month and the uncertain outlook for the policies of the new US government indicate that the economic outlook remains unclear.

Latest data about world’s second largest economy

In particular, these challenges will test whether policymakers in Beijing will have to modify some of the economic plans for this year agreed during the central economic work conference in December, including the pace of the tapering off the stimulus steps enacted last year, plans to boost consumer spending as well as the reining in of potentially dangerous borrowing and debt.

China’s fourth quarter GDP is expected to have grown 6.2 per cent compared to a year earlier, according to the Bloomberg survey. After contracting by 6.8 per cent in the first quarter of last year, China’s economy was the first to show recovery from the coronavirus with growth rates of 3.2 per cent in the second quarter and 4.9 per cent in the third quarter.

The National Bureau of Statistics is also due to release data on retail sales, fixed asset investment and industrial production on Monday.

Most analysts revised up their estimates for China’s fourth quarter growth on continued robust indicators, including stronger-than-expected export growth of 18.1 per cent in December, and are upbeat about the outlook for the coming quarters.

The official manufacturing purchasing managers’ index (PMI), a leading indicator measuring sentiment among factory owners, showed sector activity expanded for the 10th straight month in December, although the reading did ease by 0.2 points from November to 51.9 last month.

The official non-manufacturing PMI also showed continued strong expansion in the services and construction sectors, even though the index also dropped to 55.7 from 56.4.

However, the latest flare up of coronavirus cases in northern China raises questions about economic activity ahead of the important Lunar New Year holiday season, which is traditionally a major source of consumer spending.

A team of Chinese experts warned this week that the global impact of the coronavirus could be worse this year than it was in 2020.

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China GDP: economy grew by 4.9 per cent in third quarter of 2020

China’s first quarter growth rate, though, is still expected to be very high, possibly in double digits, distorted by the fact the economy suffered a historic contraction in the first three months of last year due to the massive lockdowns on transport and businesses to help contain the coronavirus.

“The double-digit headline growth will coexist with higher consumer inflation in the first quarter,” said Chen Changsheng, a senior researcher with the Development Research Centre of the State Council.

“Despite good [headline growth] figures in 2021, market entities will have a different feeling,” he added, calling for the government to address the uneven recovery, with small businesses continuing to suffer and employment growth lagging.

Yu Yongding, a senior fellow with the Chinese Academy of Social Sciences who has long insisted on the need to maintain expansionary policies to stabilise economic growth, said that the government should make decisions to address the challenges that the economy continues to face.

The resurgence of Covid-19 cases and stricter social-distancing rules could reduce Chinese New Year holiday demand

Credit Suisse

“It’s too early to talk about an exit [from stimulus policies]”, he told The Economic Observer newspaper. “As a matter of fact, the direction [of the policies] is wrong.”

The new lockdowns imposed this week on the cities of Shijiazhuang and Langfang, both near Beijing, have already led to empty streets and shopping centres.

The economic shock from the latest outbreak could become larger as the capital city of Beijing and the economic hub of Shanghai rolled out plans to restrict travel around the seven-day Lunar New Year holiday, which starts on February 11.

“The resurgence of Covid-19 cases and stricter social-distancing rules could reduce Chinese New Year holiday demand,” warned investment bank Credit Suisse, which is forecasting an overall GDP growth rate of 7.1 per cent this year.

So far, [the latest coronavirus outbreak] hasn’t impacted production. Consumption in some cities, which involves about 20 million residents, is now being affected, but additional observations are needed to see whether there will be a big national impact [on the economy]

Larry Hu

Larry Hu, chief China economist at Macquarie Capital, also listed the coronavirus as one of his top three concerns for this year, in addition to the risk of excess credit tightening and a plunge in the property sector due to new government restrictions on real estate financing.

“So far, [the latest coronavirus outbreak] hasn’t impacted production. Consumption in some cities, which involves about 20 million residents, is now being affected, but additional observations are needed to see whether there will be a big national impact [on the economy].”

China’s GDP growth rate could jump to 15 per cent in the first quarter from estimated 6.1 per cent in the fourth quarter, according to Hu, and then moderate to 8.5 per cent for the whole year.

Last week, the IMF lowered China’s 2021 growth projection to 7.9 per cent from 8.2 per cent, citing technological decoupling from the US, domestic financial risks and the impact of the coronavirus on private consumption.

“The pace of the rebound will be also affected by the external environment, which will not only depend on the global recovery on the back of effective vaccines and their roll-out, but also the evolution of the uncertain US-China relationship,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at investment firm Natixis.

This article appeared in the South China Morning Post print edition as: china set to confirm rebound from virus

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