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China’s V-shape recovery is ‘complete,’ but analysts warn of a slowdown ahead

 

China’s economy ended 2020 on a strong note after official data showed activity picked up further in the fourth quarter, but some economists warn of a longer term slowdown in the country’s growth momentum.

 

China on Monday reported that its economy grew 6.5% in the final quarter of 2020 compared to a year ago. That’s above the median 6.1% year-on-year jump that a Reuters poll had forecast, and the highest growth rate that China has recorded since the fourth quarter of 2018.

 

“The Q4 number is remarkable,” Haibin Zhu, chief China economist at JPMorgan, told CNBC’s “Street Signs Asia” after the latest Chinese economic data were released.

 

“If you look at Q4′s 6.5% — that’s even higher than the pre-pandemic growth path. From that perspective, China’s V-shape recovery is complete,” he added.

China was the first country to report cases of Covid-19 in late 2019. Authorities shut down more than half the country to contain the virus, leading the economy to shrink by 6.8% in the first quarter of 2020 — the weakest on record.

 

But the Chinese economy returned to growth by the second quarter last year, powered by strong manufacturing and export activity, said Zhu. That helped China to become the only major economy to grow in 2020 — expanding by 2.3%, according to official data — despite challenges from the Covid pandemic, he added.

 

Consumption to catch up

Consumer spending has been a weak link in the Chinese economy, and the latest official data appeared to confirm the trend.

 

Other economic indicators reported alongside GDP figures showed that year-on-year growth in retail sales slowed from 5% in November to 4.6% in December. Retail sales for 2020 was 3.9% lower than the year before, according to official data.

 

But signs are pointing to a revival in consumption, said Julian Evans-Pritchard, senior China economist at consultancy Capital Economics. He explained that growth in income is rebounding as China’s labor market has largely returned to normal.

 

Longer term slowdown

The recent increase in Covid cases is not likely to derail China’s economic recovery in the near term, experts say. In fact, several economists expect double-digit growth rates for the first quarter of 2021.

 

In the longer term, China’s growth will slow down — a trend that started even before the pandemic hit, said Simon Baptist, global chief economist at consultancy The Economist Intelligence Unit.

 

Reference: CNBC