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China extends its positive momentum


China’s economy, severely hit as it struggled to control the level of contagion, leaving authorities with no option but to resort to restricting movement and thus business activity, is proving to be the fastest to recover.

After a historic first-quarter slump – at which the economy shrank 6.8 per cent year-on-year, and following an industry-powered rebound, China’s economy is now pointing towards the prospect of being the only major economy to experience expansion this year. For 2020, the International Monetary Fund (IMF) is forecasting a growth of 1.2 per cent and above five per cent thereafter, until 2025.

Following a sharp contraction in economic activity, witnessed at the beginning of the year and consequent to the inevitable imposition of movement restrictions to mitigate the spread, economic figures significantly improved.

Manufacturing PMI – a key gauge of economic activity in China, released earlier this month showed a continued rapid expansion of the country’s manufacturing and construction sector. In August, China’s Manufacturing PMI rose to 53.1 from 52.8 in the previous month, well above analysts’ expectations, which were headed for a decline during what is typically a slower month for industrial production. The latter optimistic figure pointed to the most significant improvement in the sector since January 2011.

Similarly, as the economy continues to recover from the unprecedented shock by the COVID-19 pandemic, China’s industrial production increased by 5.6 per cent year-on-year in August 2020, above market consensus of 5.1 per cent and the most since December 2019, with output expanding for manufacturing, electricity, and mining.

Adding to signs of a more comprehensive economic recovery is the most recent economic data, particularly, China’s retail sales.

Albeit economic figures have in recent months portrayed a recovery, owing to the state-supported industrial growth, at a time when households remained relatively cautious in overspending, consumer demand had remained a weak spot.

Now, for the first time since the COVID-19 outbreak, consumer spending, which has since reported year-on-year drops is seemingly catching up with the country’s broader economic recovery.

In August, on a year-on-year basis, China’s retail sales increased by 0.5 per cent, higher than market expectations of a flat reading at 0 per cent, as consumer demand started to recover following the gradual loosening of COVID-19 restrictions. For most categories, sales increased, with garments, cosmetics, jewellery, autos, personal care, and telecoms benefitting the most.

Lastly, in August, China’s unemployment rate – still hovering at levels higher than those witnessed before the COVID-19 pandemic, declined to 5.6 per cent, from 5.7 per cent in the previous month.

Although the latest economic data, particularly the said increase in retail sales bodes well for China, certainly placing it in a step towards the right direction, characterising China’s current state of the economy, as a balanced one, is as things stand, incongruous.

That said, should China succeed in further keeping the COVID-19 pandemic under control, instigating consumer confidence and thus spending, the forecasted V-shaped recovery for 2020 shall most likely transpire, allowing one of the world’s largest economies to enter 2021 on a strong footing.

Disclaimer: This article was issued by Christopher Cutajar, credit analyst at Calamatta Cuschieri. For more information, visit https://cc.com.mt/. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.

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