Will China be the largest economy by the end of 2020?

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July 20 2020
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With much of the world still fighting the COVID-19 pandemic and China bouncing back first, experts are predicting that the country could become the largest economy in the world.

China’s gross domestic product (GDP) expanded by 3.2 per cent in the three months to June from a year ago, reversing a 6.8 per cent decline in the first quarter and beating the median forecast of 2.4 per cent.

Commenting on the findings, Janus Henderson portfolio manager Mike Kerley said China's bounce back has put it in front of the world.

“China will be the first major economy to return to growth post-COVID-19, but following the weak first quarter, the economy is still 1.6 per cent below where it was a year ago in nominal terms,” he said.

“Even so, this is still an admirable achievement and likely to be markedly better than the US, Europe or the UK which will need a number of years to return to pre-virus levels.”

The rebound has been largely industry-driven, while consumer spending was weaker than expected. It also remains vulnerable to setbacks in foreign demand as lockdowns continue to hamper activity abroad.

“Although the headline numbers beat analysts’ expectation, delving deeper suggests that the recovery still remains lumpy,” Mr Kerley said.

“The government’s focus on infrastructure spending and manufacturing recovery has borne fruit, with industrial production rising by 4.8 per cent and fixed asset investment seeing an improving trend although still below the levels of last year.

“Property investment rose by 8.4 per cent, although manufacturing investments showed no material improvement, suggesting that companies are still reluctant to commit capital in these uncertain times.”

However, China’s economic growth was stimulated by infrastructure and property growth, with retail sales continuing to lag.

“The real disappointment, though, was retail sales, which fell by 1.8 per cent and below expectations of a positive number,” Mr Kerley said.

These numbers have followed measures by the government since the pandemic started to shore up the economy, including tax and fee cuts, cheaper loans and increased fiscal spending.

The poor retail picture may be less negative than the headline data indicates. Sales of cosmetics, beverages, telecommunications equipment, daily-use articles, and alcohol and tobacco all posted double-digit increases. Autos and petroleum products posted large declines, though were likely influenced by one-off factors.

“Unsurprisingly, catering, tourism and hospitality continued to look weak, although less so than a month earlier while the sales of cosmetics, telecom products and home appliances were 21 per cent, 19 per cent and 10 per cent higher, respectively, than a year earlier,” Mr Kerley said.

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.

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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