Growth, interrupted: COVID-19 and China’s 2020 economic outlook

"The Guangzhou Circle" stands on the bank of the Pearl River (Photo: Reuters).

Author: Justin Yifu Lin, Peking University

In order to realise its goals to double 2010 GDP and per capita GDP by 2020, China needs to achieve at least 5.6 per cent growth this year. This growth target would not have been difficult to achieve if not for the unexpected outbreak of COVID-19 in January.

China took effective measures to suppress the pandemic. The whole country was under lockdown in February. In March, control measures were relaxed and production and business started to resume. But many export-oriented enterprises encountered a sudden drop or cancellation of orders due to the impact of COVID-19 in Europe, the United States and other parts of the world. China’s GDP fell 6.8 per cent year-on-year in the first quarter of 2020.

The risk of a possible second wave of COVID-19 infections means prevention measures need to be instilled and normalised as China embarks on the long road to economic recovery. In the second quarter, China’s economic growth is likely to experience a slow recovery. China’s growth in 2020 will depend on a rebound in the third and fourth quarters.

The World Trade Organization predicts that global merchandise trade will decline by between 13 per cent and 32 per cent this year. China’s growth will thus depend mainly on the increase of its domestic investment and consumption demands. If the growth rate can reach 10 per cent in the third and fourth quarters, the annual growth rate will be between 3 per cent and 4 per cent.

From the perspective of China’s fiscal and monetary policy space, and bearing in mind the government’s implementation capacity, it is not impossible to achieve a growth rate of 5 per cent or higher for the year by stimulating domestic investment and consumption. But …continue reading