scorecardresearch
Follow Us:
Wednesday, January 20, 2021

Explained: China’s unexpected GDP rebound, and signals for India

In India, with most economic activities losing two months of output and subsequent localised lockdowns being announced by states in the wake of the surge in case load, the recovery process looks like it would be an extended one.

Written by Anil Sasi , Edited by Explained Desk | New Delhi | Updated: July 22, 2020 11:15:24 am
China's GDP growth, china covid 19 gdp, china economy, india covid 19 economy growth, indian express explained People wearing face masks following the outbreak of the coronavirus disease (COVID-19) get off a shuttle bus from the subway station during morning rush hour at the Financial Street area in Beijing, China July 16, 2020. Reuters/Tingshu Wang

China’s GDP growth has swung back sharply into the black in the April-June quarter, driven by a bounceback in manufacturing output and a public spending boost. This signals a major turnaround in the world’s second largest economy, even as much of the economies globally are reeling under the impact of the Covid-19 spread.

The numbers are being closely watched as China, the first country to brace the Covid-19 storm, progressively restarts its economy. The figures from Beijing for the second quarter clearly point towards a V-shaped recovery – a sharp fall followed by an equally sharp recovery. China also effectively sidesteps a technical recession, which is signified by two consecutive quarters of negative growth.

The two significant takeaways for countries such as India are these: the recovery in economic activity, if China is an indication, is directly linked to a country’s success in controlling the coronavirus spread, alongside the quality of policy support, even if the scale of spending is modest.

The significance of China’s GDP numbers

A 3.2% year-on-year GDP growth announced by China’s National Bureau of Statistics Thursday overshadowed the 6.8% contraction recorded in the first quarter of calendar year 2020. While the year-on-year GDP growth is still far below the 6% growth recorded for the four quarters of 2019, the sharp recovery is being seen as a big positive. Nomura China’s chief economist, Lu Ting, attributed the second-quarter growth to China’s success in controlling the coronavirus and policy support, according to a Nikkei report.

📣 Express Explained is now on Telegram. Click here to join our channel (@ieexplained) and stay updated with the latest

Why are these numbers important for countries still grappling with the pandemic?

The sharp recovery in growth offers some pointers to other countries, imparting weight to the argument that the size of the fiscal package is not such a big determinant, but instead the quality of spending could hold the key. Alongside this, the swiftness with which a country manages to bring the epidemic under control is crucial.

According to the IMF, China’s COVID-19 related support policies, including spending, loans and guarantees, amounted to just 2.5% of GDP, as compared to 11% for the US, over 20% for Japan, and 34% for Germany.

So, while the size of the package was relatively small, what mattered is that in China — where one-half of GDP is driven by consumption — Beijing seems to have rightly focussed on maintaining consumption by attempting to put money in the hands of consumers. China did this through pre-paid vouchers for specific products and other related measures.

What are the signals for India?

In India, the Central government’s fiscal relief of under two per cent of GDP has faced criticism for being too small to mitigate the adverse impact of the economic crisis triggered by the Covid-19 pandemic and subsequent lockdown — one of the harshest in the world. But unlike in China – where the efforts to put money directly into the hands of the people is clearly in sharp contrast to New Delhi’s strategy – in India, much of the Rs 20 lakh crore Covid-19 economic package announced by Prime Minister Narendra Modi on May 12 has been liquidity driven, with little burden on the Central exchequer. It has been primarily focused on pushing banks to extend credit on the back of government guarantees to sectors that include small businesses, non-banking financial companies, microfinance institutions and housing finance companies.

Don’t miss from Explained | Why GCMMF, the country’s largest milk cooperative, is returning to edible oil business

With most economic activities losing two months of output and subsequent localised lockdowns being announced by states in the wake of the surge in case load, the recovery process looks like it would be an extended one. The research division of global investment banking firm Goldman Sachs has projected a 5% contraction in India’s GDP estimates. Citigroup Inc has sharply revised its forecast for the Indian economy, with India expected to contract by 6% in the financial year 2020-21 as per Citi’s latest estimates, steeper than its previous estimate for a 3.5% decline.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Explained News, download Indian Express App.

0 Comment(s) *
* The moderation of comments is automated and not cleared manually by indianexpress.com.
Advertisement
Advertisement
Advertisement
Advertisement