Coronavirus-driven contraction to hit Chinese economy in Q1: foreign investment banks

Source:Global Times Published: 2020/3/18 18:18:40

Staff members work at a workshop of Skyworth in Guangzhou, south China's Guangdong Province, February 10, 2020. Chinese authorities are carefully balancing efforts to control the novel coronavirus epidemic and minimize its impact on the economy. Photo: Xinhua

Some foreign investment banking heavyweights have predicted that a coronavirus-driven contraction will hit the Chinese economy in the first quarter. They have also ratcheted down estimates for the economy's full-year expansion over sagging global growth. 

The prevalence of pessimism among foreign financial institutions is less supported by Chinese economists, though. 

China's weak economic activity data for January-February reflects a "black swan" quarter, read a Goldman Sachs research note circulated to the Global Times on Wednesday.

Data from the National Bureau of Statistics showed on Monday that activity was much weaker than expected in the first two months due to nationwide restrictions to combat the coronavirus, with retail sales, fixed-asset investment, and industrial production all suffering their worst slumps on record. 

The US banking giant expected China's real GDP growth to slump 9 percent in the first quarter based on its high-frequency tracking and industry-level analysis.

China's economy expanded by 6 percent in the fourth quarter and for the whole of 2019 it grew 6.1 percent, the slowest pace in 29 years.

Goldman economists see weakening external demand amid the rapid spread of the disease in other countries constraining a second-quarter recovery. Real GDP is unlikely to "return to the pre-virus trend until the third quarter," they wrote, lowering their 2020 real GDP growth forecast to 3 percent from the previous 5.5 percent. 

In a report sent to the Global Times on Wednesday, UBS economists led by Wang Tao predicted that the Chinese economy may post a 5 percent fall in real terms in the first quarter, saying that economic activity is yet to normalize in March after being severely hit by the coronavirus outbreak in the first two months. 

For the whole year, China's growth may slow to 1.5 percent even with more policy support as a worsening global economy amid fears of the COVID-19 pandemic weighs on the nation's recovery. 

"As the negative impact on the US and European economies are felt going forward, the much weaker global demand will hurt Chinese exports. The increasing risk of imported cases may also mean more cautiousness in relaxing mobility restrictions," UBS said. 

Economists at Bloomberg Economics revised their China 2020 growth prediction down to 1.4 percent from 5.2 percent previously. 

Japanese financial powerhouse Nomura also forecast China's real GDP would contract in the first quarter and put the full-year growth estimate at 4.8 percent. 

The first quarter is almost over, and judging by the numbers that have already been released and a prudent approach to work and production resumption adopted by local governments, the economic data for the first quarter would look ugly, Zhang Yansheng, chief research fellow with the China Center for International Economic Exchanges, told the Global Times on Wednesday. 

The economy's recovery in the rest of the year is exposed to uncertainty over whether the pandemic could be effectively contained in the rest of the world, notably the US, Europe and Japan, according to Zhang, calling for a greater focus on recommencing economic activity.

Cao Heping, a Peking University economics professor, allayed fears entertained by pessimists in an interview with the Global Times on Wednesday. He projected economic growth to be in the range of 4-5.5 percent this year.

Liu Wei, president of Renmin University of China, also said earlier in March that the viral outbreak has had a fairly big impact on the economy.

The economy's natural growth, if there's no policy boost, would fall shy of 4 percent this year, according to Liu, noting expansionary policy aimed at stimulating growth is required to ensure the economy could grow by 5.5-6 percent, thereby offering a basis for other economic and social development goals to be achieved.

Global Times

Posted in: ECONOMY

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