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China amazes again with rapid recovery

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China amazes again with rapid recovery

Market participants again give China a big thumbs up for its rapid economic recovery. It goes without saying that China is the first economy to overcome the crisis which the country is to blame for. The COVID-19 pandemic sent the national economy into a tailspin. However, according to the fresh macroeconomic data, the fallout seems to have been tackled. Remarkably, China’s GDP grew 3.2% in Q2 2020. Meanwhile, such expansion is a distant dream of other advanced economies.

China’s authorities coped well with reopening its economy after the shutdown. Besides, they did not allow the economy to slip into a technical recession when gross domestic product contracts for at least two quarters sequentially. Amid lockdown measures, China’s national economic output logged an abrupt slump by 6.8% in Q1.

One of the keys to success is a step-by-step plan to lift lockdown measures. The People’s Bank of China made emergency fiscal decisions such as rate cuts, liquidity provision, lending schemes etc which proved their efficiency. As a result, the agricultural sector rebounded 3.9% in Q2 and the industrial production expanded 4.4%. Nevertheless, GDP remains in the contraction zone in annual terms. Thus, GDP dropped 1.6% from Q2 a year ago. 

The actual metrics came out to be stronger than the consensus. Optimistic analysts had projected a moderate GDP growth of no more than 1.5%. Others had predicted a further economic decline.

However, there is a fly in the ointment. China’s stock market has to face a challenge. On July 16, China’s stocks saw the sharpest crash over the last 5 months. The Shanghai Composite index instantly sank 4.5%. The main culprit of the panic mood among investors is another twist in the US – China trade conflict. Escalating jitters could eventually assure China to resort to the hawkish monetary policy.      

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