GP Insights # 384, 18 July 2020
China reported an economic recovery in the second quarter (April-June 2020) with economic growth at 3.2 per cent. As one of the first countries to reopen its economy after battling the effects of the pandemic, China becomes the first to record positive economic growth in the second quarter of 2020.
In February 2020, the numbers had fallen by 6.8 per cent of GDP. Industrial production and retail were the two sectors that contributed to the growth. The Chinese economy had reported a 6.8 per cent shrink in GDP in the first quarter.
This positive growth indicates that China has avoided a technical recession and has exceeded the expectations that were placed on its economy, indicating a V-Shape recovery. Bloomberg forecast had predicted a 2.4 per cent GDP growth rate for China in the second quarter.
What is the background?
First, the disruption in China's plans for 2020 and the impact of pandemic. China had announced that it would have a growth rate of 6 per cent for 2020, with a focus on increasing jobs and remapping its supply chains, aiming at recovery from the impact of the trade dispute with the US. But the COVID-19 outbreak led to the shut down of manufacturing, factories, and businesses, leading to a record 6.8 per cent fall in the GDP in the first quarter of 2020.
Second, retail sales and domestic consumption are yet to improve. Though the early signs of recession have been avoided, the growth in the industrial output and domestic demands are not even. The industrial production was mainly in the mining, gauge manufacturing and utilities, and consumption fell by 1.8 per cent. Fixed asset investments in China fell by 3.1 per cent, and the unemployment numbers are at 5.7 per cent, down from 6.2 per cent in February. The service sector, capital investments, retail sales, and manufacturing output are still negative.
The uneven growth is a sign of restorative growth, and a majority of the improvement would still depend on how the global economy recovers.
What does it mean?
The improvement of the Chinese economy is a good sign for post-pandemic recovery. Exports, manufacturing, jobs, and domestic consumption will continue to be important markers of recovery in the third and fourth quarters of 2020. Almost all of China's key trading partners are seen struggling to reopen their economies or are seen imposing restrictions on them. Moreover, because the Chinese economy depends on its labor-intensive exports, a large part of the recovery will depend on the supply and demand at the global level.