China’s first-quarter GDP growth could dip to zero or even enter negative territory after being battered by the Covid-19 outbreak.
In a commentary outlining the economic impact, influential economist Zhang Anyuan warned that “propaganda can’t move mountains” and that the country would find it “extremely difficult” to hit its 6% growth goal this year.
The former economist for the National Development and Reform Commission pointed out that previous predictions, which dismissed the medium- and long-term drag on the world’s second-largest economy caused by the virus, were “wishful thinking.”
“If in January and March, the country managed to reach growth targets of 6% [each month], and the economy in February contracted by 12%, then for the three months combined, growth for the first quarter will be 0%,” Zhang, of CFC Financial, a brokerage run by state-owned CITIC Securities, said.
“But based on the percentage of businesses that have resumed work, power usage, passenger flow, container throughput and other indexes, February’s economy is far worse than the estimated drop of 12%,” he wrote on the website of the China Chief Economist Forum, a research institute under the powerful State Council’s umbrella.
Still, Zhang’s remarks appear to fly in the face of official government targets in 2020, including GDP growth of around 6%. Most analysts and economists have downgraded their forecasts to between 4% and 5%, and Beijing looks certain to revise its figures.
Last month, China was forced to shut down factories, businesses and schools in a move to curb the spread of the coronavirus, which has so far killed nearly 2,700 people and infected more than 80,000 worldwide.
A gradual return to work started nine days ago as major manufacturers cranked up limited production. Yet most small- and medium-sized businesses are still struggling to get back on their feet.
Since the private sector accounts for around 80% of urban jobs and 60% of GDP growth, helping SMEs has become a priority for President Xi Jinping’s administration.
Already the International Monetary Fund has cut its growth outlook for China by 0.4% to 5.6%, but warned that could be revised.
“In our current baseline scenario, announced policies are implemented and China’s economy would return to normal in the second quarter. As a result, the impact on the world economy would be relatively minor and short-lived,” IMF Managing Director Kristalina Georgieva said in a statement.
“But we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” she added.
Morgan Stanley was also in a more cautious mood after releasing a brief on Thursday.
“The number of new cases outside Hubei rebounded for the first time in six days [from 433 on February 26 compared to 406 on February 25] amid production resumption, which was at a modest pace. Three more provinces [also] lowered their emergency response level,” the multinational investment bank stated.
But in a fast-changing series of subplots, the Covid-19 epidemic continues its relentless march across the globe. For the Vanguard Group, there are three possible “scenarios” for China’s economy.
“A couple of scenarios could leave China’s 2020 economic growth in the 5% [to] 5.5% range … [But] a second, more plausible, path in the low 5% range is a continuation of mass quarantines and business shutdowns, with economic activity not returning to normal until perhaps early in the second quarter,” the investment house said in a report this week.
“A less likely but important scenario to watch for is the ‘false recovery,’ with activity getting back to normal only to be followed by a re-emergence of the virus. In this case, output would lag through the first half of the year, the government would enact more aggressive stimulus programs, and full-year Chinese growth would fall into the high 4% range,” Vanguard added.