An Important News Economy

Opinion: China’s economy will suffer a double whammy as its export partners are overrun by the coronavirus

The country’s economy was locked down for the better part of two months, and now demand from abroad will get weaker as the weeks go on

In China, the economic fallout of the COVID-19 outbreak will drag on 2020 gross domestic product (GDP) growth as the country endures the twin hits of the early-year domestic slowdown and the as-yet-unknown drop in overseas demand in key markets.

But the country’s high debt levels — partly fueled by its massive stimulus during the 2008 financial crisis, in addition to the structural slowdown already underway before the outbreak — means Beijing will hesitate to mirror the large-scale spending being implemented in other virus-ravaged economies, such as the U.S., Japan and South Korea. China will now have to choose whether to help buoy its employment and annual growth targets through spending that could jeopardize long-term economic stability.

Virus fallout

The COVID-19 outbreak originating in China saw the country’s economy locked down for the better part of two months — a massive blow to export-oriented industries, as well as consumer and travel spending during a key annual holiday period. China’s combined January-February economic data released in mid-March showed a worse-than-expected hit to the economy due to the virus, with value-added industrial production down 13.5%, fixed asset investment down 24.5% and retail sales down 20.5%.

Those months also saw at least 5 million workers lose their jobs, bringing the official unemployment rate to 6.2% — the highest on record and not even counting the massive pool of migrant workers inside the country that were idle during the same period but not counted in official unemployment numbers.

Even before COVID-19’s unexpected emergence, China had been in the throes of a structural slowdown in its economic growth. Over the past decade, China’s GDP growth, according to government figures, has gradually moderated from above 10% in 2010, to below 8% in 2015 before hitting 6.6% in 2018 and softening further to 6.1% in 2019 — the slowest in three decades.

There is a broad consensus that the first quarter of the year will bring a contraction in GDP with COVID-19 factored in. And for the full year of 2020, economists across the board have revised their growth projections downward. Goldman Sachs dropped its initial 5.5% forecast to 3%, S&P lowered it from 4.8% to 2.9% and Nomura from 4.8% to 1.3%. High-level Chinese government leaks suggest that even the official projections may be revised downward from the current 6% for 2020 to 5%.