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China to see V-shaped recovery from COVID-19 shock: experts
20 Jul 2020

 

China is on track for impressive economic recovery from the COVID-19 shock thanks to the nation's effective efforts to contain the outbreak, experts said.

 

V-SHAPED RECOVERY IN SIGHT

 

"We think the economic recovery is well on track, and expect low single digit GDP growth for Q2, followed by a V-shaped recovery with 5 percent to 6 percent year-on-year growth in the second half," Lucy Qiu, emerging markets strategist at UBS Global Wealth Management, told Xinhua on Tuesday.

 

"Effective containment of the pandemic and proactive policy support have supported Chinese economy's early recovery vs. the rest of the world," said Qiu.

 

Industrial production and fixed asset investments, property and infrastructure investments in particular, have led the recovery so far, said the analyst.

 

Export growth returned to positive in June while consumption remained weak, she noted, adding the country is capable of unleashing the potential of the sector with targeted policies including support for micro and small enterprises and policies focused on protecting jobs.

 

Experts expect China's GDP growth to stage noticeable progress for the second quarter and beyond, buoyed by effective virus control and policy stimulus.

 

"According to our forecasts, quarter-over-quarter and year-over-year growth will be positive in Q2 2020," Aditya Bhave, senior global economist at Bank of America, told Xinhua on Tuesday.

 

China's economy grew 3.2 percent in the second quarter, up from -6.8 percent in the first quarter, according to data issued by China's National Bureau of Statistics on Thursday.

 

While "it is too early to characterize the shape of the Chinese recovery," so far it has been relatively V-shaped as the economy has transitioned out of lockdowns, Bhave noted.

 

Mehran Nakhjavani, emerging markets strategist at research firm MRB Partners, told Xinhua that China's economic readings for May and June have recovered, and "we see this pace continuing in the second half of the year."

 

The Institute of International Finance (IIF) said in a research note last week that China has been on the path to normalization with industrial production and manufacturing posting strong rebound.

 

Noting "normalization in the retail sector could be an uphill battle," IIF analysts said they are confident that overall activity is staging a V-shaped recovery.

 

RISKS COEXIST WITH OPPORTUNITIES

 

Meanwhile, experts noted that headwinds remain for China's economic recovery with weak external demand among the key challenges, as other countries are mainly lagging behind in virus containment and a second wave would postpone the global reopening process. Some also cautioned risks from renewed U.S.-China trade tensions.

 

China still faces constraints from not being able to fully open, fading pent-up demand and weak demand from trading partners, according to Ethan Harris, head of global economics with Bank of America.

 

The key challenges going forward for China will be with domestic demand once pent-up demand has been satisfied, foreign demand because the rest of the world is lagging in the recovery, and containment of potential future outbreaks, echoed Bhave. He added that "it is encouraging that the outbreak in Beijing appears to have been contained."

 

China's economy is expected to expand 1.2 percent in 2020 lower than trend growth of 5.8 percent, according to Bank of America.

 

A second wave of pandemic postponing the global reopening process and renewed U.S.-China trade tensions are key risks facing Chinese economy though they are not the base case scenario, according to Qiu.

 

In 2021, China's GDP growth will likely face a fiscal headwind, as policy support measures are withdrawn, said Nakhjavani, adding that still, this headwind should in principle be matched by the tailwind of stronger global domestic demand growth, i.e. stronger exports from China.

 

Nakhjavani said "we do not see any dramatic impact in the short term from recent reform and liberalization measures, although they ought to play out in terms of supporting productivity growth on a one-to-three year time horizon."

 

Citing China's retail sales data as an example, Harris also noted that voluntary social distancing is a big economic headwind that continued after the reopening process is complete.

 

Additionally, foreign flows into Chinese rates market would remain strong in the second half, especially as the yield differentials have further widened, according to Bank of America Global Research.

 

Looking ahead, experts said that a combination of fiscal and monetary policy will continue to bolster the momentum in the world's second largest economy.

 

"China's experience suggests a strong recovery in industry might be feasible in countries where virus containment measures are effective," said IIF analysts.

 

Source: Xinhua Silkroad