31 Jul 2020
Posted in Business Fundamentals
China’s economy set to post positive growth in 2020 unlike peer countries, forecasts GlobalData
With improvements in key macroeconomic indicators, the Chinese economy is forecasted to post a positive growth in 2020 unlike other peer countries, which are expected to enter into a recession, says GlobalData, a leading data analytics company.
The business activities started to resume from March across various provinces of China, except in Hubei where lockdown continued till the beginning of April. According to National Bureau of Statistics of China, the GDP growth rate increased by 3.2% (YoY) in Q2 as compared to 6.8% contraction in Q1 2020. GDP is projected to register strong growth in the second half of 2020 with improvement in domestic demand, export growth, government investment in infrastructure, and strong growth of industrial sector.
Gargi Rao, Economic Research Analyst at GlobalData says: “The business and consumer sentiment in the country is gaining momentum. The country has targeted to add 9.0 million new jobs in urban areas in 2020, of which more than 5.6 million has already been created in H1 2020.
“However, there exists risk for China as the country is already on backfoot diplomatically due to accusations of hiding relevant information regarding the COVID-19 spread. Along with this, India banned Chinese apps, US imposed travel restrictions and Japan paid its companies to take out business from China. In medium to long-term, such drastic steps by peer nations are bound to hinder business activities in China.”
The decline in investment in fixed assets narrowed and investment in high-tech industry picked up slowly. Meanwhile, online retail sales grew as physical movement restrictions are still in place in many parts of China.
The Index of Industrial Production (IIP) witnessed a 13.5% decline in both January and February 2020. However, the intensity of decline got reduced to 1.1% (YoY) in March. In April and May, IIP posted a positive growth of 3.9% and 4.4%, respectively. Purchasing Managers’ Index (PMI) Manufacturing slipped by 14.3 points from January to February 2020. The index rose to 52 in March 2020 and remained above 50 during April-June 2020.
Lockdown was re-imposed in some parts of Beijing from June 2020, which led to a moderate trend in industrial production and total value added of industrial enterprises. Exports growth contracted by 2.65% (YoY) in January due to the imposition of lockdown restrictions, which worsened to -40.5% (YoY) in February. As unlocking started along with government measures, the intensity of decline slowed down to 6.6% (YoY) in March and in April the country posted a positive growth of 3.4% (YoY).
The Chinese stock market trends show that China has recovered quickly. SSE Composite Index declined by 2.1% and 11%, respectively, on 28 February and 31 March 2020, when compared with the same period the previous year. It recovered and posted a growth rate of 0.2% and 9.8%, respectively on 30 June and 28 July vis-à-vis the same period of previous year.
Ms Rao concludes: “The country’s economy recovered gradually in the second quarter of 2020 with protective government measures. The country is already on a growth path and economic activity is projected to rise further in the second half of 2020.”