First Official Indicator Of Virus’s Effect On Economy Bodes Ill

THE FIRST OFFICIAL indicator of the effect of the coronavirus, Covid-19, on China’s economy, the manufacturing purchasing managers’ index for February, makes for sobering reading.

At 35.7, it hit a record low and was down from 50 in January. A figure below 50 indicates a contraction in activity from the previous month.

Only an estimated 60% of factories have returned to work after the Lunar New Year holiday extended as part of the effort to contain the virus’s spread. However, the overwhelming majority have yet to return to anything approaching full production as half the population remains in lockdown of one sort or the other.

The banking group, ANZ, reckons the economy is operating at around 20% of capacity with only one in two workers back at work. Many private economists are further downgrading their first-quarter GDP forecasts to below 4%, some substantially below.

It will be a massive challenge for the Party leadership to balance tackling the coronavirus outbreak and preventing the economy from going into freefall as a result. Most concerning will be the effect of the outbreak on small and medium-sized enterprises. They account for four out of five jobs.

A survey of such firms found millions on the verge of collapse, struggling to pay workers and suppliers — or to get paid. Meanwhile, their debts mount. The Chinese Association of Small and Medium Enterprises says around 60% could cover regular payments for only one to two months before running out of cash, and only 10% believe they could hold out for six months or longer.

The social instability of widespread unemployment is the leadership’s worst nightmare. Further support is being put in place to forestall that.

Deleveraging the economy has already been put on hold because of the outbreak and the financial system could be vulnerable to any marked increase in non-performing loans if the slowdown persisted for any time.

A rare silver lining is that the lack of factories working and vehicles on the street mean the skies are clear of pollution across the country.

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One response to “First Official Indicator Of Virus’s Effect On Economy Bodes Ill

  1. Pingback: Coronavirus Hits China Trade | China Bystander

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