Analysts Cast Gloom on China’s Economy
The coronavirus continues to wreak havoc in mainland China. While experts continue to voice their opinion on this, economy news analysts are casting doom on China’s economy. Many financial institutions are coming out to announce downgraded economic forecasts. The subject in question for most of these institutions is the overall GDP and the Q1 GDP for 2020.
The Lunar New Year Holiday
Most economic activities slowed down this week because of the Lunar New Year holiday celebrations. While some companies will try to open up after the holidays, experts expect most of them to extend the holiday. Such a move is sure to affect global supply chains and the world economy. Economic analysts estimate this will have repercussions amounting to up to a 3.5 days GDP value for the Chinese economy. The effect of this on the global economy will be intense.
Last year, the full GDP growth for China was 6.1%. This figure was a 0.5% decrease from 2018’s growth of 6.6%. This drop was because of a prolonged Trade War with the USA. Despite the drop, many economy news analysts still termed the growth impressive given the circumstances. For 2020 however, the coronavirus presents a new dynamic. Already, a Chinese government economist is expressing fears that growth for the first quarter might drop below 5%. But what are other economists saying?
A 0.2% – 0.3% Expected Drop For Many
While most of the financial institutions that have cared to voice their opinion express pessimism, they fall within a common range. Many of the economists from these organizations are putting the expected drop anywhere between a 0.2%-0.3% range. Among the economists in this category are those from Citigroup. This firm chose to downgrade its forecast from 5.8% to 5.5%. The economists from Citi further forecast that the first quarter would take a hit from a lot of the negative impact arising from the outbreak.
Macquarie also downgraded its estimation from 5.9% to 5.6% for the whole year. However, the firm cast a negative outlook for the first quarter, downgrading its forecast from 5.9% to 4%. Its chief economist for China, Larry Hu, says this forecast will hold should the virus come under control by the end of the first quarter. He further described the current state of things as one that would “get worse before getting better.”
Mizuho expects that the economic growth for China in 2020 will pick up in the second half of the year. For starters, however, the firm expects rapid contractions in the first quarter. Its head of economics and strategy for Asia, Vishnu Varathan, explained in a press release. Mr. Vishnu said that since the Coronavirus is more deadly than SARS, the effects could be more devastating. Mizuho downgraded its forecast for 2020 from 5.9% to 5.6%. It further forecasts that for the first half of the year, the Chinese economy will grow between 4.8% and 5.2%. This figure is going to accelerate in the second half to between 5.8% and 6.3%.
Another firm, Natixis, chose to downgrade its forecast by 0.2% from 5.7% to 5.5%. An economist at the firm, Jianwei Xu, said this is because the immediate impact of Coronavirus will be more severe than that of SARS. The economist further explained that the Chinese economy is going through a general deceleration period. Add this to the fact that the service sector, which holds up all others, will be the worst hit by the outbreak.
Those That Have Stayed Put
Some firms, however, maintained their previous forecasts and remain optimistic that the economy of China will grow normally. ANZ is one such firm, which maintains the belief that the Chinese economy will grow by 5.8% in 2020. The firm, however, casts doom in the first quarter, downgrading its growth from 5.9% to 5.0%.
Moody’s, another reputable firm, maintains its forecast of a 5.8% growth in 2020 for the Chinese economy. However, like ANZ above, the firm also expects that the economy will not perform well in the first quarter.
Economists at Vanguard hold the opinion that the main effect will be on sentiment. However, they maintain their forecast of a 5.8% growth because of how quickly the Chinese government responded to the outbreak.
What Are Others Saying?
UBS moved in to downgrade its previous forecast of 6.0% by 0.5% to stand at 5.5%. Economists from this firm expect that should the government contain the virus, the economy might rebound later. They attribute this possibility to pent-up demand a well as government stimuli.
Richard Bernstein Advisors offers that the first quarter will see contracted growth, but the economy will rise from quarter three onwards. It remains pessimistic on whether quarter two will prove profitable.
The Economist Intelligence Unit downgraded its forecast from 5.9% to 4.9-5.4%. On the other hand, Nomura maintains that the worst is yet to come, and the growth will be significantly lower than 6.1% for 2020.
