An appalling set of activity data

Covid-19 is known for not having an extremely high mortality rate. But its impact on the Chinese economy has been very damaging. It has basically made the economy stop running. Almost all the available resources have been pulled in to save lives and contain the spread of the coronavirus.

Industrial production fell 13.5%YoY YTD, fixed asset investments fell 24.5%YoY YTD and retail sales fell 20.5%YoY YTD. Industrial output was not as bad as fixed-asset investment and retail sales because there was still iron, steel, and copper production in Feb, otherwise, it would have been a lot worse than reported.

There is nothing in the history of this data that can compare to this set of abysmal figures.

Recovery depends on the global spread of Covid-19

China is now at the recovery stage from the coronavirus but the global spread of the virus means that China’s economy is not going to recover fully soon.

Investment might recover faster than retail sales and industrial production because the government has promoted “new infrastructure” investment to boost economic growth to support the recovery. So fixed asset investment in the coming months should rise from negative growth.

Retail sales have recovered only very slowly as consumers are still wary about going into shopping malls and restaurants. This could continue as there are some imported Covid-19 cases in major cities.

Industrial production will continue to receive blows in March and April as the spread of Covid-19 in almost all countries means global demand will stop abruptly, and the global supply chains will still be broken when factories around the world suspend operations. We are not optimistic about China’s manufacturing and exports.

Downgrade GDP and yuan forecast

We have downgraded China’s GDP and yuan forecasts just now. You can read it here.

Forecasts on GDP and USDCNY for 1Q20 is 3.6%YoY and 7.20 respectively.