NEXT MONDAY’S SCHEDULED release of third-quarter GDP number allows an excuse to catch up, albeit belatedly, with the International Monetary Fund’s latest World Economic Outlook, in which the Fund upgraded its forecast of China’s growth this year to 1.9%. That is almost a percentage point higher than its projection made in June.
As the third-quarter GDP figure is likely to indicate following some strong high-frequency indicators, the country is on track to be the only G20 economy to grow this year. Ruan Jianhong, head of the central bank’s statistics department, let slip at a news conference that third-quarter GDP growth is expected to be higher than in the second quarter, which was 3.2%. At the very least, that would all but cancel out the first-quarter contraction.
For next year, the Fund is expecting 8.2% growth as the rebound continues along with a modicum of stimulus to sustain it. By way of context, this means that by the end of next year, China’s economy is likely to have grown by 10% from where it was at the end of 2019 while no other large economy will even have got back to where it was before Covid-19 started to sweep the world.
The IMF says it bases its upgrade on Beijing’s effort to contain the pandemic and both the fiscal and monetary stimulus subsequently applied. These maintained household disposable income, firm’s cash flows and supported the provision of credit. This Bystander only hopes that the Fund is not being too sanguine in concluding that these actions have prevented a recurrence of the still-persisting debt problems caused by the stimulus that followed the 2008 global financial crisis. We do note, however, the Funds ‘so far’ caveat.
Looking at the disaggregated data, the Fund sees manufacturing doing better than services, especially services involving face-to-face contact.
The IMF sees three classes of countries benefitting from China’s rebound, commodities exporters, those countries connected to the Chinese economy through global value chains, and those countries involved in the international efforts to develop a Covid-19 vaccine.
The downsides to the IMF’s China forecasts are the same as they are for the rest of the world: a ‘second wave’ resurgence of infection and limited or ineffectual supplies of vaccine. For China, there is a third risk beyond the obvious one of a further deterioration in trade and technology relations with the United States. It is that those first two impact the rest of the world so severely that recovery is even slower and more protracted that it looks like it will be, squeezing global demand.
In the medium-term, once next year’s strong cyclical rebound is passed, the prospect is that the structural slowdown in China’s growth that preceded the pandemic as the economy rebalanced will resume.