China’s Economy Will Shrink For The First Time Since The Cultural Revolution In 1976

SCMP: Coronavirus: will China’s economy shrink for the first time since the Cultural Revolution in 1976?

* Plunges in official and private sector purchasing managers’ indices amid the coronavirus outbreak prompted sharp revisions of economic forecasts
* Analysts expect China to enact additional fiscal and monetary stimulus but stop short of massive support enacted after the global financial crisis in 2008

The odds are rising that China will report a sharp deceleration in growth – or even a contraction in the first quarter as a result of the impact of the coronavirus epidemic.

The outbreak has paralysed the country’s manufacturing and service sectors, putting Beijing in the difficult position of either forgoing its economic growth goal for 2020 or returning to its old playbook of massive debt-fuelled economic stimulus to support growth.

The larger-than-expected deterioration in the official and private sector purchasing managers’ indices for both the manufacturing and services sectors to all-time lows in February – the first available economic indicators showing the extent of the economic damage done by the epidemic – has prompted economists to slash their Chinese growth forecasts.

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WNU Editor: All of my friends and contacts in China are telling me the same thing. With few exceptions everything is shut down. But everyone is also telling me that they are eager to go back to work, and to resume business. I guess it all comes down to how long will the impact of the coronavirus outbreak continue in China. If infections rise and people continue to die, people are not going to be eager to go back to work. But if the rate of infection continues to fall in the coming weeks I can easily see most businesses opening, and people going back to work by April/May. If that becomes the case, this quarter (and probably the next one) will show a significant GDP decline. But I have confidence that with time everything will roar back to where it was before the outbreak. The big problem for China will then be on restoring the supply chains that existed before the outbreak, and to respect its trade deal with the US. That is not going to be an easy task.

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