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China’s GDP drops for the first time on record

  • April 20 2020
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Invest

China’s GDP drops for the first time on record

By Cameron Micallef
April 20 2020

The COVID-19 pandemic has taken 6.8 per cent off China’s GDP, marking its first drop since recording the figures in 1992, official numbers show.

China GDP

China’s GDP drops for the first time on record

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  • April 20 2020
  • Share

The COVID-19 pandemic has taken 6.8 per cent off China’s GDP, marking its first drop since recording the figures in 1992, official numbers show.

China GDP

In what could be a foreshadowing for the west, China’s economy stalled due to the shutting down of key industries and supply chains as a way to slow down the spread of COVID-19.

State Street Global Markets’ senior multi-asset strategist, Ben Luk, said the news has not shocked the financial world.

“It was not a surprise to see such a drastic fall in China’s first-quarter GDP report given the early Lunar New Year, coupled with subsequent lockdowns across the country in order to contain the virus, halting business activities and domestic consumption. ”

However, the asset strategist highlights the slowdown could be short-lived, with new figures showing China is on the way back up.

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“We are seeing some early signs of stabilisation, most notable are the pickup in iron ore imports across the first two weeks of April and worker mobility has improved to above 80 per cent,” Mr Luk continued.

The most important macro release of March was the record surge in total credit growth, with bank lending to households and private business growing significantly.

This suggests that China’s economy is beginning to return to normal as businesses begin to reopen.

“Aggregate financing increased by CNY5.2 trillion in March, which was five times more than February and twice as much as in 2019,” Mr Luk said.

Mr Luk believes the country will not have a V-shaped recovery in quarter two, but he is bullish on the financial outcomes moving forward.

“We recognise that China has moved away from Phase 1 (virus containment) and Phase 2 (worker and factory resumption), but to revive Phase 3 (domestic recovery) takes much more direct policy responses,” he said.

“Today’s much weaker-than-expected retail sales confirm China has to do a lot more to improve the liquidity transmission and revive domestic demand.

“We anticipate the government will provide easier access to property loans, loosen buyer restrictions and support the developers by delaying interest payments or even waiving various corporate or land taxes, given the household wealth effect in China is heavily dependent on the value of the property market.”

China’s GDP drops for the first time on record
China GDP
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About the author

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Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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