IMF sees significant China slowdown even as virus eases

The slowdown in China's economy in the first quarter "will be significant and will leave a deep mark for the year", although there are signs that activity is returning to normal as the coronavirus outbreak fades, the IMF said on 20 March.

The organisation made the comments in a blog post on the response to the coronavirus. It gave general praise for China's actions since the outbreak emerged, saying that the right policies can make a difference in fighting the disease and mitigating its impact, but warned of the difficult economic trade-offs.

"The coronavirus shock is severe even compared to the great financial crisis in 2007–08, as it hit households, businesses, financial institutions, and markets all at the same time — first in China and now globally," it said.

The Chinese government had moved quickly to safeguard financial activity, including by maintaining credit access to state-owned companies through generous lending by the country's large state banks.

"While there are reassuring signs of economic normalisation in China — most larger firms have reported reopening their doors and many local employees are back at their jobs — stark risks remain," the IMF said. These include the potential for infections to rise again as domestic and international travel resumes, and the risk that widening outbreaks elsewhere in the world will depress demand for Chinese goods just as the domestic economy recovers.

The blog post did not include any new GDP predictions. The IMF said last month it would lower China's economic growth projection by 0.4 percentage points to 5.6pc this year, but then hinted in early March that bigger cuts were likely.

Some financial institutions have sharply reduced their China GDP forecasts in recent days, after official economic data for January and February showed a pronounced slowdown. UK bank Barclays said this week that the Chinese economy is likely to expand by just 1.3pc this year, down from its most recent forecast of 3.2pc. First-quarter GDP is likely to shrink by 15pc year on year, worse than its previous projection of an 8pc decline.

There were no new locally transmitted coronavirus cases in China yesterday for a second consecutive day, according to official government figures.

By Kevin Foster

source: Argus Media