China: Mood in the cellar

Due to the corona eruption, the Chinese economy is currently experiencing the worst slump in growth since the financial crisis of 2008/09, and the results of the recently published purchasing manager survey give a first impression of how dramatic the losses are. These are the first comprehensive economic indicators for the month of February and they paint a devastating picture.

The survey results from the industrial sector have each fallen by more than ten index points compared with the previous month. There has not been such a slump within one month since the survey of the indices. By way of comparison, in autumn 2008 the two indicators each lost around twelve points within two and three months respectively. Moreover, both indices have currently reached new all-time lows of 40.3 points (survey by IHS Markit) and 35.7 points (survey by the Chinese statistical office). The survey in the service sector has also turned out to be the worst ever. Here the survey value even dropped by more than 20 points and fell below the 30-point mark.

A significant slump in sentiment had been expected, but the extent of the current decline comes as a surprise. The growth figures for the first quarter will probably be very weak. Compared to the final quarter of 2019, we expect a marked contraction in economic output, and the year-on-year rate will probably be at least halved.

Much now depends on how quickly the Chinese economy returns to normal. There are good reasons to expect that the survey results will already be better in March. Outside the most severely affected province of Hubei, there have been hardly any new corona virus infections in China recently, and most industrial companies have resumed production. But it is only starting up slowly. China's economy is still far from normal. And with the accelerated spread of the epidemic in numerous other countries, all of which are among the People's Republic's most important trading partners, new economic and health risks have arisen for China. It will probably take until well into the second quarter before China's economy really starts to run smoothly again and the first catch-up effects become apparent.

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