China: Economic activity is expected to contract in Q1 – UOB

UOB Group’s Economist Ho Woei Chen sees the Chinese economic activity slipping back into the contraction territory in the January-March period.

Key Quotes

“Chinese data in Jan-Feb including retail sales (-20.5% y/y vs Bloomberg est -4.0%), industrial production (-13.5% y/y vs Bloomberg est -3.0%) and fixed asset investment (-24.5% y/y vs Bloomberg est -2.0%) all recorded an unprecedented double-digit contraction. This is the first contraction for these economic data series. Meanwhile, the surveyed jobless rate jumped to 6.2% in Feb from 5.2% in Dec 2019, the highest on record.”

“Although the coronavirus (COVID-19) pandemic is expected to have a significant impact on China’s economy, the wide gap between the forecasts and actual data in the first two months of this year suggests that the GDP impact of the COVID-19 outbreak could be significantly larger than expected and a contraction in 1Q20 GDP is perhaps unavoidable. Further out, economic recovery in China may be hindered as the COVID-19 spread in Europe and the US continues unabated, dousing hopes for a sharper v-shaped rebound in growth.”

“Ahead of the 1Q20 GDP release on 17 April, we will get further data confirmation including the Purchasing Managers' Index (31 Mar), inflation (both CPI and PPI on 10 Apr) and trade (14 Apr) for March. Even with some recovery in these numbers, China’s economy is still headed for a contraction in 1Q20, the question is how deep the contraction will be. Based on Jan-Feb figures, we will further downgrade our growth forecast for China this year to 4.1% from 5.3% previously as we now expect 1Q20 GDP at -3.4% y/y, 2Q20 at 5.7% and then average 6.5% in the second half of the year. This brings 2020 to the worst year since 1990 when China registered GDP growth of just 3.9%.”