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Four months have passed since China confirmed that an unknown lung disease had infected a small group of people in the Wuhan metropolis. During the following weeks, Wuhan and other cities became isolated and economic activity plummeted across the country.
Now more than 3 million infected are confirmed worldwide and the number of deaths is close to 220,000.
Major financial shock
China has experienced the largest decline in economic activity since market reforms began more than 40 years ago. The new activity indicators suggest a normalization in the industry with more activity in April.
The official Chinese purchasing managers index PMI (purchasing managers index), which gives an indication of business activity, on Thursday showed a measurement of 50.8 for the month of April, against a consensus of 51. Anything for above 50 may indicate growth in activity.
“The spread of the pandemic has increased abroad and global economic activity has fallen sharply. China’s foreign trade faces great challenges, “writes the National Statistics Office in a comment on the official PMI report, in which there is a preponderance of large state corporations.
A private purchasing manager index, compiled by Caixin and Markit, hit 49.4 in April. In March this was over 50 years.
Optimism from a month ago has disappeared, according to chief economist Zhengsheng Zhong, who is responsible for the Caixin / Markit survey.
“The economic shock may be greater than previously expected and the economy may take longer to recover,” Zhong said in a comment.
Impaired purchasing power
The ING financial institution believes that it is too early to conclude that the Chinese economy is above the worst.
– Does this reflect a complete picture of the economy? We doubt that, says China’s chief economist Iris Pang of the ING financial institution in a comment.
According to ING, a subindex showing new export orders ended at 33.5 for April, “a very poor measure.”
– Western countries have not yet eased the restrictions. Even after these are alleviated, it is unclear when demand will return to previous levels due to social distancing. It is too early to conclude that the Chinese economy is growing again, says the chief economist.
She believes that the lack of international orders will cause Chinese factories to resort to layoffs. This will weaken the purchasing power of Chinese consumers.
– China is not only a production economy, but also an important consumer market for international companies. The circle of evil has so far begun, the chief economist believes.
– Fear will survive the pandemic
Scandinavian Enskilda Bank (SEB) downgrades China’s growth forecast for 2020 to two percent growth. This is one of the most optimistic forecasts of international financial institutions.
“Although restrictions have been lifted for most of the country, it appears that fears will survive the pandemic itself,” writes Eugenia Fabon Victorino, SEB’s Asia strategy leader, in a new report.
Luxury brand companies have experienced growth in March and April. This is called a “revenge purchase” from people who have been locked up for a long time and have money to spend on unnecessary purchases. SEB is skeptical about whether this will last.
– Revenge purchases can only help heat consumption to a certain extent, says Victorino.
She points out changes in traffic patterns in Chinese cities. More people use cars than public transportation for fear of being thrown aboard buses or trains. Despite this, there are 30 to 40 percent less queues in Chinese cities on weekends than a year ago.
– The risk of a prolonged deterioration in the labor market can cause households to increase their savings to have a reserve. This will be at the expense of consumption, writes the Singapore-based SE economist.(Terms)Copyright Dagens Næringsliv AS and / or our suppliers. We want you to share our cases using a link, which links directly to our pages. Copying or any other use of all or part of the content may only be made with written permission or as permitted by law. For more terms see here.
