Daily Management Review

Following Recovery From Pandemic, Chinese Economy Posts Strongest Growth In Two Years


Following Recovery From Pandemic, Chinese Economy Posts Strongest Growth In Two Years
A very fast paced recovery from the Covid-19 pandemic induced economic slowdown and recession helped the Chinese economy to post its strongest growth in two years. The economy came to a virtual standstill after the emergence of the pandemic in the country at the beginning of 2020. China was the origin of the pandemic which later spread throughout the world.
Even though the annual growth of 2.3 per cent in the second largest economy of the world is also the slowest since 1976, the growth rate in the last three months of last year was faster than the growth rate prior to the pandemic crisis.
China is the only major economy of the world that has managed to avoid a year-on-year contraction in its economy and analysts attributed this success to the speedy measures that were taken by the Chinese government to respond to the pandemic which first emerged in the Chinese city of Wuhan. Stimulus packages from the government and the demand in foreign markets for the goods made by China’s manufacturing industry were also behind the successful recovery of the economy.
“China’s growth reflects global patterns. Domestic retail sales underperformed the economy – it is external demand that is supportive. As European and US consumers switch spending from services to goods, manufacturing economies outperform,” said Paul Donovan, the chief economist at UBS Global Wealth Management.
In the first three months of 2020, the Chinese economy contracted for the first time in four decades but soon continued to pick up pace, showed official figures. In the fourth quarter of 2020, the Chinese economy grew at 6.5 per cent annualised rate while it grew at 4.9 per cent annualised rate in the third quarter of last year.
“The monthly data suggest that growth dropped back slightly heading into 2021 but it remains strong. We think this strength will persist during the first half of this year, before giving way to a weaker second half,” said Julian Evans-Pritchard, the senior China economist at Capital Economics.
With an annual rate of growth of 7.3 per cent, industrial production showed continued strong growth in December, shows a breakdown of the GDP figures. However the data also showed a drop in retail sales growth to 4.6 per cent from 5 per cent.
Even though there was a sip in growth of retail sale in China, there is still enough potential for Chinese households to start spending with the excess savings that they have form last year, said Evans-Pritchard.
 “Meanwhile, the tailwinds from last year’s stimulus should keep industry and construction strong for a while longer. Favourable base effects will also help keep growth rates elevated until at least the middle of this year. Further ahead, however, we think growth will soften. Foreign demand for Chinese goods will drop back as vaccines start to reverse the recent shift in global consumption patterns. And domestic policy support will be partially withdrawn throughout this year,” he added.