Nikkei: “China regains 1.1% GDP growth in Q2”. But The Recovery is far from a V-shaped Rebound

08/07/2020

The Country has confidence, strength to maintain economic development, but full-year estimate lowered to 1.6% as export headwinds and COVID-19 weigh

 

China saw its economy continue to recover and its key economic indicators continue to move in a positive direction in May and June. According to latest Nikkei report, China regains 1.1% GDP growth in Q2 on production rebound, which is a hard-won result considering the rampant COVID-19 worldwide and the shrinking international economy and trade. According to statistics released by the National Bureau of Statistics and the Ministry of Transport, the total profits made by industrial enterprises above the designated size, the index of services production, and China’s fixed-asset investment in transportation began to increase.

Besides, power consumption of the service sector and rail-cargo volume were also on a rise. Qun Liao, chief economist at China CITIC Bank International, forecast a 1.9% increase in real gross domestic product, saying that rising supply caught up with demand while leeway on monetary and fiscal policies propped up growth.

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But the country is facing challenges. Analysts argued that China will continue to grow, but less than expected. The recovery is far from a V-shaped rebound. The average forecast of full-year growth for 2020 came to 1.6%, down from 3.3% in the previous survey in March. “We cut our 2020 China growth forecast from 3.0% to 2.0%,” said Arjen van Dijkhuizen, senior economist at ABN AMRO Bank, noting that “external headwinds have risen.”

Analysts attributed this “slow growth” to weak demand abroad. Trade is still a sensitive spot for China, which is managing an escalation in tensions with the United States, moreover while China began reopening its economy months ago, many other global powers only just started to lift some lockdown measures within the past few weeks. For example, Sophie Altermatt, economist at Julius Baer, took the global economic slowdown into consideration. “We believe that China will face increased headwinds in the export sector in the coming months,” Altermatt told to Nikkei.

Moreover economists remain worried about a possible “second wave” of coronavirus cases, not only in China, but abroad too. Plus the turmoils with Washington and India, are not helping the economic recovery. China’s GDP could contract as much as 1.2% in 2020, said Jian Chang, chief China economist at Barclays Asia Pacific. She cited “a potential further escalation in Sino-US trade or financial tensions as a major downside risk for growth.” But China is, maybe, facing a much more important internal challenge: cut the unemployment rate

Despite Beijing underlined that the stable growth of China’s economy and the sound development in the long term remain unchanged, Many economists warned that deteriorating employment will harm consumption as income declines. Given choices to select the effect of the coronavirus pandemic on China’s economy, many picked an “increase in unemployment” or “decline in consumption”, Nikkei wrote. 

Domestic demand has become the main driving force for China’s economy. Steady progress has been made in creating a new development pattern where domestic and foreign markets boost each other with domestic market as the mainstay, thus making the fundamentals of China’s economy stable enough to withstand impacts. And new consumption drivers such as live streaming e-commerce are boosting consumption, but experts such as Xie Yaxuan, chief macroeconomic analyst at China Merchants Securities, said that “a rise in the unemployment rate has lowered income expectations and weakened consumer demand”.

Shen Jianguang, chief economist at JD Digits, said the pandemic has hit private and small to midsize companies hard, causing a “very strong downward pressure on employment in the short run.” “Self-employed workers and rural migrant workers are heavily impacted by the coronavirus outbreak,” said Kevin Lai, chief economist at Asia ex-Japan of Daiwa Capital Markets.  “The official unemployment rates may not fully reflect these influences.”

What’s next?  Heavy job losses and fears of a second wave of infections continue to make consumers cautious, but without doubt, China is emerging as the only big-economy around the world to face a growth in such incredible economic crisis. 

 

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