Chinese economic growth to decelerate to 1.6 pct in 2020, likely to rebound to 8.5 pct in 2021

The economic outlook of China continues to be challenging because of the COVID-19 outbreak, but early signs of recovery are emerging. In the recent weeks, the outbreak of virus has steadied, permitting the authorities in China to slowly start relaxing restrictions on the movement of people and reopening the economy. The March quarter marked the peak of the COVID-19 crisis in China, setting of a considerable contraction in activity. In the first quarter of 2020, the real GDP fell 6.8 percent on a year-on-year basis, as compared with the 6 percent growth seen in the fourth quarter of 2019. Activity, in non-annualized quarter-on-quarter terms, fell 9.8 percent in the March quarter of 2020.

China’s economy has got on board with a recovery path as production has slowly resumed and life is returning to normalcy. Coal consumption of the country has been rising in recent weeks from the slump is February slump and road congestion in large cities has returned to pre-Lunar New Year levels.

“We expect real GDP growth to rebound through the rest of 2020 and into next year, assisted by significant stimulus by fiscal and monetary authorities”, noted Scotiabanks in a research report.

The Chinese industrial sector is expected to record the fastest rebound, reflecting the fact that it is much easier to resume factory production than consumer spending. Meanwhile, the demand side will start recovering only after business and consumer sentiment has started to solidify sufficiently, which would be a slower process.

“Indeed, high frequency data for the month of March show that the recovery in industrial production is leading that of retail sales. We forecast China’s real GDP growth to average 1.6 percent in 2020, followed by a rebound to 8.5 percent next year”, stated Scotiabank.

The outlook for Chinese economy remains quite uncertain with risks skewed towards the downside. A possible second wave of infections is a considerable risk. Furthermore, given that a huge part of the rebound dynamics will be tempered accordingly.  Meanwhile, trade tensions with the U.S. continue to linger in the background.

“Given the challenging economic backdrop, we assess that it will be very difficult for China to meet its purchase commitment of US goods as agreed in the “phase one” trade deal in mid-January. Accordingly, the risk of the trade conflict flaring up again over the coming months is high”, said Soctiabank.