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Debate: China’s economic outlook amid COVID-19 outbreak

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Via China Daily

China’s economic growth is facing increasing uncertainties as the novel coronavirus outbreak has become a global pandemic. Economists urged that government policy focus in the coming months should be on containing the risk of rising unemployment and preventing temporary shocks caused by the pandemic from becoming permanent damage.

They also expect supportive government policies to facilitate a strong economic rebound in the second quarter and policymakers to continue using expansionary monetary and fiscal policies to offset the outbreak’s negative impact on economic activities.

Most economists predict China’s first-quarter GDP growth will fall into negative territory and the official economic data will likely reflect a severe economic downturn in first three months as the COVID-19 outbreak has almost brought the country’s economic activity to a standstill.

But observers said that the economy has shown signs of a gradual recovery as more restaurants and shopping malls reopened and more workers have returned to factories as production resumed. The lifting of the lockdown in Wuhan, Hubei province, the most affected region in China, has also sent a positive signal that stringent control measures have been effective in containing the virus.

“I think one of the most pressing challenges facing the government is to prevent the epidemic from having a long-lasting impact on the economy. If there is widespread bankruptcy and large-scale layoffs, it will be very hard to return economic activity to normal,” said Xu Gao, chief economist at BOC International.

“More active macroeconomic policies are needed to resolve the risks in the labor market and to help stimulate demand and create more jobs. We expect China’s policy stance to remain accommodative and there is likely to be a substantial rebound of GDP growth in the second quarter,” Xu said.

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Xu added that fiscal policies should continue to be proactive to facilitate more issuance of government bonds to finance major infrastructure projects and to channel more affordable credit to smaller businesses to help them withstand the financial hardships.

Sebastian Eckardt, lead China economist at the World Bank, warned about the weakened external demand and disruptions of the global supply chain as a result of the wider spread of the virus, which could substantially slow down the recovery of the Chinese economy.

Eckardt said that the global spread of the virus will negatively affect demand for Chinese exports, which makes it more important to stimulate domestic demand. More fiscal stimulus is needed but it should be done in a balanced way that does not exacerbate existing debt problems, he added.

Economists have been divided on whether it is necessary and reasonable for China to set a GDP growth target for this year. The government was scheduled to deliver its work report, including its economic agenda and targets, at the annual session of the National People’s Congress, China’s top legislature. However, this meeting has been postponed due to the outbreak.

Xu said that it is still necessary for China to have a growth target this year as it is crucial to help stabilize business confidence and anchor market expectations. He said it is reasonable to set the GDP growth target at around 3 percent this year.

Eckardt said that the pandemic has brought unprecedented shocks to the Chinese and global economy. He said that it is the time for the government to tolerate slower growth, adopt policies to support recovery, and avoid aiming for an unreasonably high growth rate at the expense of increasing longer-term economic vulnerability and risks.

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