China Economic Outlook. Second quarter 2020

Summary

China's GDP growth dipped to historical low in Q1 amid COVID-19. The sliding growth calls for more policy stimulus. We believe pro-growth measures will help put China’s growth engine back to the right track. The GDP growth rate will steadily climb up to 7% y/y in Q4, concluding 2020 with a full-year growth outturn of 2.2%.

Key points

• Key points:
• China’s government announced that its growth rate dipped to -6.8% y/y ( versus market consensus of 6% y/y) in the first quarter of 2020, which is the historical low.
• The quick recovery in industrial production shows that the supply shock caused by the COVID-19 outbreak tends to be short-lived. In contrast, the demand shock caused by the pandemic needs more time to dissipate.
• The overwhelming growth concern will prompt China’s authorities to deploy more loosening policy initiatives to rev up the economy, in particular on the front of domestic demand.
• Fiscal policy tools unquestionably exceeds in terms of being more targeted. Market observers anticipate the central government to substantially expand the size of 2020 fiscal deficit to above 4% of GDP compared to 2.8% last year.
• The GDP growth rate will steadily climb up to 7% y/y in Q4, concluding 2020 with a full-year growth outturn of 2.2%.

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