China Economic Forecast (Numbers From Late February)

The coronavirus outbreak continues to severely disrupt economic activity and will weigh heavily on economic growth in the first quarter of the year. The government has restricted transportation, which, together with widespread fear among the population, is hitting consumption and manufacturing. That said, recent monetary easing measures and targeted fiscal support from the government should be propping up activity somewhat. Although indicators for January are fairly upbeat, this is likely because the fallout had yet to be felt: The manufacturing PMI dipped only slightly as output continued to grow, albeit at a softer pace; M2 grew at a robust pace; and new yuan loans reached a record high. While recent data suggests the epidemic is gradually being brought under control, uncertainty surrounding the future evolution of the disease is still elevated.

The coronavirus outbreak and an underlying structural slowdown will weigh on the economy this year. While the “phase one” deal with the U.S. should alleviate some short-term concerns, a potential sharp correction in the property sector, a possible worsening of the virus and a potential resurgence of tensions with the U.S. are downside risks to the outlook.

“We expect a big plunge for both manufacturing and services PMI in February to a range of 40-45 due to the coronavirus outbreak. The services PMI could be hit harder than the manufacturing PMI, as a number of service sectors have come to a grinding halt since 23 January. We expect real GDP growth in Q1 2020 to drop materially from the 6.0% pace achieved in Q4 2019, on a scale perhaps bigger than the decline of 2pp registered in Q2 from Q1 2003 during the SARS outbreak, as: (1) the coronavirus itself may prove more serious than SARS regarding the number infected; and 2) the special timing of the coronavirus outbreak around the LNY holiday could be more disruptive to China’s economy.” - Nomura

“Production is expected to be affected by the coronavirus but it is very hard to estimate the extent of this. Uncertainty about the impact on manufacturing activity is very high and labour-intensive factories are particularly at risk. Some production lines will be affected, but it is difficult to estimate the damage across various industries.”- ING

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