May 7, 2020

News in Charts: Eyes on China for signs of what lies ahead

by Fathom Consulting.

China was the first country to be affected by COVID-19. Having contained the virus domestically, its economic trajectory should offer clues about what will happen in other countries. After rising sharply in February, daily new cases have now fallen to very low levels. And strict social distancing measures have been reduced. The University of Oxford produces an index that measures how stringent different government policies to contain COVID-19 have been. It is scaled from 0 to 100, with a higher score consistent with more stringent measures. According to this, China’s level of stringency at the beginning of May was 62, marking a small drop from its peak of 71 in March.

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The impact of social distancing measures on economic activity was clear in first quarter’s GDP data, which showed a record quarterly decline. As some of these measures were lifted, there have been signs of recovery. The official NBS PMI surveys are consistent with a recovery, with both measures slightly above 50, which is the threshold that separates contraction from expansion. However, they are both only a little bit above 50, implying that just a small number of firms have seen activity increase relative to an extremely weak March. Nonetheless, they suggest that the domestic picture is improving, albeit from very low levels.

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Although foreign demand was cited as a constraint on growth in surveys, official trade data paint a more positive picture. The annual growth rate in exports was 3.5% in April on this measure, despite the severe restrictions in place across Europe and North America. That number was much higher than the consensus expectation in a Reuters poll (-15.7%). Meanwhile, imports were down 14.2% year-on-year, suggesting China was a drag on global demand. Looking forward, despite April’s surprisingly resilient figure, the risks to China’s exports appear skewed heavily to the downside. Whether domestic demand can offset that remains to be seen, and will offer some indication about the extent to which containment of the virus in one country can be consistent with economic recovery while the virus remains prevalent in other countries around the world.

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