Coronavirus: Chinese economy bounces back into growth

Marco Green
July 16, 2020

It would probably be hard to find a clearer example of what economists describe as a "V-shaped recovery" as the figures China released on Thursday.

China's economy rebounded from a painful contraction to grow by 3.2 percent over a year earlier in the latest quarter as anti-virus lockdowns were lifted and factories and stores reopened.

Retail sales shrank by 3.9%, but that was a marked improvement over the previous quarter's 19% contraction while millions of families were confined to their homes and shopping malls were shut down. A Bloomberg poll had predicted a growth rate of 2.4 percent.

China's economy, the first in the world to be jolted by the coronavirus pandemic, has been recovering slowly in the past two months, though the bounce from the virus-induced downturn has been uneven. That was China's first economic contraction since at least 1992, when it began publishing quarterly GDP data.

The economy contracted 1.6 per cent on-year in the first six months, the NBS said, while the urban unemployment rate dipped to 5.7 per cent in June, from 5.9 per cent a month earlier.

But it added a note of caution.

That is why some economists are reluctant to call it a V-shaped recovery just yet.

"V" for victory over the coronavirus?

However, in a sign that full recovery could take time, retail sales - a key indication of consumer sentiment in the world's second-largest economy - fell short of forecasts, shrinking 1.8 percent on-year in June.

But many economists say the overall picture for China's economy is brightening.

China's GDP arrives at +3.2% YoY in Q2, meets expectations.

In a letter to members of the Global CEO Council, Xi said "the fundamentals of China's long-term economic growth have not changed and will not change", according to state media.

Research firm Capital Economics says the latest figure means the government's headline unemployment rate is just half of one percentage point higher than its level at the end of a year ago.

"Our calculation of real GDP disagrees with the consensus-beating print, with growth probably flat in the second quarter", he said.

But others were not quite as optimistic.

Louis Kuijs of Oxford Economics said household consumption remains the "weakest link" among indicators, although China's economic upturn is expected to continue in the second half of 2020.

And other factors are also likely keeping a lid on China's economic performance, including a build-up of unsold goods or components in factories, together classified as inventory.

The world's second-largest economy was still not out of the woods, however, as consumption and investment remained in the doldrums, suggesting authorities will likely have to offer more support to strengthen the recovery.

Other reports by Click Lancashire

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