Daily Outlook

Private survey of Chinese businesses predicts economy could contract this year

With about half a year to go, it’s still not a given that China’s economy will grow in 2020. An independent survey of more than 3,300 businesses in the country by U.S.-based China Beige Book found that for the second quarter, recovery from the first quarter’s decline is minimal, according to findings released Tuesday Beijing time.

“Until and unless global demand recovers more forcefully, the incremental quarterly improvement just seen will make for a contraction for full-year 2020,” the report said. “No matter the lens, gains over Q1 are marginal. Services, Manufacturing, Property, and Commodities all saw revenue and profits move into expansion territory,” the report added, noting that the figures remained around record lows.

China’s National Bureau of Statistics is set to release official second-quarter data the third week of July. The world’s second-largest economy has steadily resumed work in the last few months after efforts to contain the coronavirus outbreak forced more than half of China to extend the Lunar New Year holiday by at least a week in February. Gross domestic product contracted 6.8% in the first quarter.

The global economy is set to decline 3% this year, according to International Monetary Fund projections. The latest forecast released in April predicts the U.S. economy will contract nearly 6% this year, while China and India are the only countries out of 16 listed that are set to see growth — of 1.2% and 1.9%, respectively.

However, the spread of the virus overseas in a global pandemic has remained an overhang for China, as external demand declines. Even as the central Chinese government is trying to shift the economy’s reliance more toward domestic consumption, exports of goods and services still accounted for about 19.5% of national GDP in 2018, according to World Bank data.

Official figures showed exports slumped in May, following an unexpected increase in April. China’s emerging industries purchasing managers’ index fell in June. A sub-index of new export orders remained unchanged from the last two months, “suggesting sustained headwinds from overseas markets,” Ting Lu, chief China economist at Nomura, said in a report Monday. “We caution that the surge in exports of coronavirus-related medical supplies over the past two months was largely due to a jump in prices, which is likely unsustainable.”

Reports on China’s economy in the last several months include some bright spots, such as increased online shopping and local manufacturers using existing capacity more for domestic consumers. But Chinese consumers are not necessarily ready to spend in a big way. In May, imports declined by the most in four years. China Beige Book’s early look at second-quarter growth indicates any domestic consumption boost may still fall short on a national level.

Private survey of Chinese businesses predicts economy could contract this year, CNBC, Jun 23

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