China – A “bad” test for the future of global economic recovery

The “fragile” recovery of the Chinese economy is raising questions about the future prospects of the global economy after the Covid-19 pandemic.

China’s experience so far shows that, although the pandemic has been contained, consumption and investment cannot quickly return to normal. A series of important recent statistics show that China’s factory output, consumption and investment continued to improve in May. However, there is little sign of a large enough recovery. for the economy to bounce back in a V-shape. Therefore, analysts are concerned about the global economic outlook. The concern is that if China – a country that has been successful in containing the pandemic – cannot lift confidence and bring economic activity back to normal quickly, the country will not be able to recover. what can be done here? “China’s experience so far has shown that the path to the global economic recovery will be fraught with obstacles,” said Shaun Roache, chief economist for Asia-Pacific at S&P Global. Ratings said. “We still expect China to recover in the second half of the year, but demand will not soar,” he said. The latest bright spot in the Chinese economy is that new home prices in May rose at the fastest rate in seven months, thanks to the easing of blockade orders. Along with that, industrial output increased by 4.4% over the same period last year. Retail sales fell 2.8% – a significant improvement from the 7.5% drop in April. Fixed asset investment fell 6.3% in the first five months of the year. Steel production also skyrocketed.

However, the gloom in private investment and consumption in China shows that domestic conditions are still weak and international demand has not yet returned. “Lack of demand is the main problem with China’s economy right now,” said Shen Jianguang, an economist at online retailer JD.com. Policymakers in China are still rolling out support packages cautiously. China’s central bank (PBOC) on June 14 launched an additional support package worth 200 billion yuan ($28 billion) for banks. “The official survey in China shows that the country’s large enterprises have not yet restored 100% of their capacity, even though the social distancing order has been lifted for 4 months. The challenge for small companies is even greater. Difficulties mainly come from needs. Both domestic and foreign demand are weak,” commented Chang Shu, chief Asia economist at Bloomberg. The latest data on China comes as analysts remain divided over the model of the global economic recovery. At the end of last week, White House economic adviser Larry Kudlow shared on CNN that it is “highly likely” that the US economy will recover in a V-shape. But just a few days before that, the Chairman of the Federal Reserve. US (Fed) Jerome Powell also warned that the recovery will take a long time. Economists at Morgan Stanley say the global economy is in a new growth cycle and GDP will recover to pre-pandemic levels by the fourth quarter. They forecast a “deep but short-term” world recession. “We have confidence in a V-shaped recovery, based on surprising growth numbers and recent policy action,” the firm said in its mid-year outlook. Economists at JPMorgan Chase & Co highlight the risks of a spike in debt and budget deficits, forcing governments to scale back fiscal stimulus. “This turning point, coupled with limited action by central banks, is a key factor in our forecast of an incomplete recovery throughout 2021,” the report said. The International Monetary Fund (IMF) last week warned that the global economy was recovering more slowly than expected and there was still “great uncertainty” about the outlook. The OECD forecasts that the world GDP will decrease by 6% this year, if the pandemic is contained. This process depends largely on the evolution of the pandemic. Chinese authorities are racing to control a new outbreak in Beijing. Nearly 100 people were infected in just a few days last weekend. “The May data shows an improvement, although not as fast as expected,” said Helen Qiao, chief China economist at Bank of America. there is a risk that economic activity could still be impacted again.”