The Chinese economy may not grow at all in 2020. This has not happened for 44 years


GDP growth this year in the world’s second-largest economy could fall to just 1% or 2%, from 6.1% in 2019, according to recent estimates from analysts, including a Chinese government economist. In the worst-case scenario, the $ 14 trillion economy might not grow at all, the World Bank warned earlier this week.

It would be its weakest performance in 44 years, even worse than the lows of the global recession of 2008-2009 and in 1990, when the West imposed sanctions on China after the Tiananmen Square massacre.

Analysts at UBS and Goldman Sachs recently lowered their estimates of China’s growth this year to 1.5% and 3% respectively.

Even Chinese officials, who have set annual GDP targets every year since 1985, are reluctant to make predictions. A politician from the People’s Bank of China (PBOC) said this week that the government should not set a target for 2020.

“It is even difficult to achieve growth between 4% and 5%. Many predicted that growth would drop to just 1% or 2%. [this year]. These circumstances are all possible, ”Ma Jun, a member of the Chinese central bank’s monetary policy committee, told Economic Daily.

Given the huge uncertainties in the outlook, China is struggling to determine the level of fiscal and monetary stimulus to trigger, Ma said. An “unrealistic” growth target could encourage local governments to splurge on investment in the economy. infrastructure, which does little to reduce unemployment or improve people’s livelihoods in the short term, he added.

More help needed

Yet an official survey this week showing an anemic recovery in China’s vast manufacturing industry last month, following a slump in activity in February, was followed by the announcement of further stimulus measures.

The Chinese cabinet on Tuesday announced more than 3 trillion yuan ($ 423 billion) in additional financial assistance for small businesses.

The PBOC will provide an additional 1,000 billion yuan ($ 141 billion) to small and medium-sized banks and reduce the amount of liquidity they must hold in reserve. Both measures aim to stimulate lending to small and medium-sized enterprises (SMEs).

Previously, the central bank had injected liquidity or made additional loans worth more than 1.65 trillion yuan ($ 232 billion). The government had also allocated at least 116.9 billion yuan ($ 16.4 billion) in financial aid and stimulus measures aimed at combating the virus.

Tuesday’s announcement included a government pledge to double “temporary cash distributions” to low-income families and the unemployed from March through June. The government did not say how much it would give, but said the move would benefit more than 67 million people.

“We believe that increased financial aid for businesses (especially SMEs) and households inflicted by the pandemic should be the best economic and social policy at the moment,” said Ting Lu, chief economist for China, on Wednesday. for Nomura, in a note.

Beijing is also trying to revive the auto industry after sales fell 42% in January and February. The government will extend subsidies and tax breaks on electric vehicles by two years, while reducing the sales tax on used cars from May to the end of 2023.

A private survey released on Wednesday showed China’s manufacturing activity has grown very slightly in March, as factories reopened following the easing of widespread closures and travel restrictions.

The Caixin / Markit manufacturing purchasing managers index fell to 50.1 last month after a record low of 40.3 in February. A reading above 50 indicates expansion, below 50 a contraction.

PMI data suggests the contraction in activity has bottomed out, but the economy has yet to recover, Capital Economics analysts said in a note on Wednesday.

China has huge automotive and aviation markets.  The two collapsed in February

“The [Caixin] A survey suggests that just over half of companies saw conditions improve last month, implying that activity has improved slightly from dismal February results, but remains very weak, ” they wrote.

“The slow improvement implied by last month’s PMIs is in line with our view that China is facing a prolonged recovery from the Covid-19 outbreak,” they said.

Tens of millions of jobs at risk

Capital Economics has one of the most bearish forecasts for the Chinese economy this year. He estimates GDP fell 16% in the first quarter and forecasts a 3% contraction for all of 2020.

China faces two major headwinds as it tries to get back on its feet – weakening foreign demand amid the global crisis pandemic and a potential second wave of coronavirus cases.

Nomura estimates that the Chinese economy will grow by only 1% in 2020, causing millions of job losses.

“We estimate that the fall in exports alone could lead to the loss of 18 million jobs in [the second quarter]Lu wrote on Tuesday.

Caixin will publish its survey on the activity of the service sector in China, which represents around 60% of GDP, on Friday. Either way, analysts expect the government to help the economy more.

Tao Wang, UBS chief economist for China, said Beijing is likely to announce more support for individuals, the labor market and health systems, more investment in infrastructure and further cuts in health rates. ‘interest.

“In addition, we expect the government to significantly lower this year’s GDP growth target or … [focus it] rather on controlling coronaviruses, getting back to work, reducing poverty and supporting the labor market, ”she said.


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