China's 2020 GDP growth set to sink to 44-year low as coronavirus cripples economy: Reuters poll

Growth in the world's second-biggest economy for 2020 was forecast at 2.5 percent, according to the median of 62 analysts surveyed by Reuters, which would mark the weakest clip since 1976, the final year of the decade-long Cultural Revolution that wrecked the economy.

April 14, 2020 / 04:25 PM IST

China's economic growth is set to stumble to its slowest annual pace in nearly half a century, as the coronavirus health crisis shutters businesses and brings the global economy to a standstill, a Reuters poll showed on Tuesday.

China's leaders have pledged to take more steps to combat the impact from the pandemic that looks likely to delay a recovery in the virus-ravaged economy, as mounting job losses pose a threat to social stability.

Growth in the world's second-biggest economy for 2020 was forecast at 2.5 percent, according to the median of 62 analysts surveyed by Reuters, which would mark the weakest clip since 1976, the final year of the decade-long Cultural Revolution that wrecked the economy.

That is a sharp easing from a 6.1 percent gain in 2019, and is below the 5.4 percent growth forecast in the March poll.

The survey also predicted China's economy in the first quarter will contract by 6.5 percent year-on-year, for the first time since at least 1992 when the country first started issuing quarterly gross domestic product (GDP) data.

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

It also marks a reversal from 3.5 percent growth forecast in the last survey done in the previous month. China will release its first-quarter GDP data on April 17.

The projected 2020 growth would be weaker than the 3.9 percent rate in 1990, when the economy was hit hard after the Tiananmen crackdown, but still outperform a 1.6 percent contraction in 1976.

The forecasts highlighted the challenges faced by the Asia's engine of growth given an immediate recovery looked some way off as the global pandemic hits exports, despite a sharp slowdown in China's virus infections from its peak in February.

Early in the outbreak, Beijing imposed draconian travel restrictions and factory suspensions to curb the spread of the disease, but at a heavy price.

As the number of new domestic cases are now easing, the government is slowly relaxing emergency measures and exhorting industries to reopen. But analysts say the pace of recovery in the coming months will be heavily constrained by external headwinds.

The virus has spread rapidly around the world, prompting unprecedented shutdowns in many countries, which has wreaked havoc along global supply chains and severely hurt overseas demand, raising the risk of a steep global recession this year.

"Despite its initial success in containing COVID-19, China is still faced with two dire challenges: nosediving external demand due to the pandemic, and the rising threat of a second wave of the virus," said economists with Nomura, adding that the hope of a quick recovery is dimming.

The slump in China's exports and imports eased in March, customs data showed on Tuesday, but analysts say the overall outlook remains grim as the pandemic has brought business activity in its major trading partners to a standstill.

The health crisis has dealt a particularly heavy blow to the country's private sector, which is the most productive part of the economy and a key source of employment.

The small and privately-owned firms are facing a severe cash crunch to tide over a prolonged downturn, with many laying off workers or shutting down businesses.

Analysts expect nearly 30 million job losses this year due to stuttering work resumptions and plunging global demand, outpacing the 20-plus million layoffs during the 2008-09 financial crisis. [L4N2BV0WT]

"Lingering fear of the virus and uncertainty over job losses mean people are remaining cautious. We expect household consumption to be negatively affected for many months to come and see only a gradual sequential recovery from Q2 onwards," said Louis Kuijs, economist at Oxford Economics.

MORE STIMULUS STEPS IN PIPELINE

The negative growth shock has already prompted a raft of monetary policy response from the central bank, but so far its easing has been more measured than during the global financial crisis.

Sources told Reuters the People's Bank of China (PBOC) will ramp up its policy easing to support the economy but will not follow the U.S. Federal Reserve's steep rate cuts or quantitative easing moves, mindful of debt and property market risks.

Analysts expect the PBOC to deliver another 100 basis points (bps) in banks' reserve retirement ratios (RRR), and lower the one-year LPR by 35 bps to 3.70 percent by the end of 2020.

The poll also predicted the benchmark deposit rate to be cut to 1.25 percent from its current level of 1.50 percent. The PBOC has kept the benchmark deposit rate unchanged at 1.5 percent since October 2015.

China's consumer price index (CPI) in 2020 will likely rise 3.3 percent from the previous year, quickening from a 2.9 percent rise in 2019, according to the poll.

Follow our full coverage of the coronavirus pandemic here.

 
Reuters
first published: Apr 14, 2020 04:20 pm

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark