Is China heading for a secret recession?

Chinese coal consumption is more than a third lower than normal © Getty Images

(Image credit: 2010 AFP)

published 25 February 2020

Could the Covid-19 shutdown have put China on course for a “secret recession”? asks Tom Rees in The Daily Telegraph. Freya Beamish of Pantheon Macroeconomics predicts an “unprecedented” 0.9% quarter-on-quarter GDP fall. GDP expanded by 6.1% last year, but there are persistent questions about the official figures. The true impact of this outbreak will “be a closely guarded state secret”.

“It is hard enough to understand China’s economy and its global ramifications at the best of times,” says Ambrose Evans-Pritchard in The Daily Telegraph. Those banking on a stimulus-led rebound later this year must first wait for the outbreak to be contained. Meaningful fiscal stimulus is impossible so long as the spending channels are blocked by health curfews and factory closures.

“It is hard to overstate” the economic impact of the current shutdown, says The Economist. Chinese coal consumption is more than a third lower than normal; factories are shut or running at low capacity in provinces accounting for more than 90% of exports. The global economic impact could be severe. Unlike during the 2003 Sars outbreak, China’s factories are today enmeshed “in supply chains of mind-boggling complexity”. The closure of a factory in Wuhan could have consequences for a manufacturer in Stuttgart and a retailer in Michigan.

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Evidence of an impact on neighbours has already emerged, says Neil Shearing of Capital Economics. Korean imports from China fell almost 50% year-on-year in the first ten days of this month. The coronavirus will prompt more multi-national businesses to question the wisdom of complex supply chains. We are already living in an era of deglobalisation in the wake of Trump’s trade wars. The Covid-19 outbreak will only accelerate the tre

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.