FocusEconomics China Feb 2021

CHINA Economic Outlook

CHINA Economic Outlook

The recovery from the coronavirus-induced slump is expected to strengthen in 2021

Economic Growth

The economy expanded 6.5% in Q4, more than expected, underpinned by an export surge and robust industrial output. Moreover, private consumption likely also gained steam, as suggested by recovering retail sales. That said, momentum in December appeared more mixed: While industrial production picked up speed, retail sales growth slowed, potentially due to cold weather. Turning to 2021, GDP growth will be flattered in Q1 by a highly favorable base effect. However, underlying momentum will likely be hit somewhat by the coronavirus outbreak in North China and tighter social distancing rules. In politics, the inauguration of Joe Biden as the U.S. president should herald a rhetorically more civil relationship between the two powers, although any rollback of U.S. tariffs and restrictions on Chinese tech firms is unlikely in the near term.

Exports

Merchandise exports were up 18.1% annually in December (November: +20.6% year-on-year), markedly above market expectations. Surging exports in recent months have been driven by shipments of protective equipment and work-from-home electronics, which have both been in strong demand due to the pandemic. Meanwhile, imports were up 6.5% year-on-year (November: +3.9% yoy), indicative of solid domestic demand.

As a result, the merchandise trade balance rose from the previous month, recording a USD 78.2 billion surplus in December (November 2020: USD 75.5 billion surplus; December 2019: USD 47.3 billion surplus). Lastly, the trend improved, with the 12-month trailing merchandise trade balance recording a USD 535 billion surplus in December, compared to the USD 504 billion surplus in November.

Looking ahead, export growth is set to stay elevated in Q1, supported by a highly favorable base effect (given China was in the grips of the coronavirus outbreak in Q1 2020) and continuing high demand for pandemic-related goods. However, export growth should then moderate markedly later in the year.

Source: FocusEconomic China Consensus Forecast - February 2021

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Economic Growth

The economy expanded 6.5%  in Q4, more than expected, underpinned by an export surge and robust industrial output. Moreover, private consumption likely also gained steam, as suggested by recovering retail sales. That said, momentum in December appeared more mixed: While industrial production picked up speed, retail sales growth slowed, potentially due to cold weather. Turning to 2021, GDP growth will be flattered in Q1 by a highly favorable base effect. However, underlying momentum will likely be hit somewhat by the coronavirus outbreak in North China and tighter social distancing rules. In politics, the inauguration of Joe Biden as the U.S. president should herald a rhetorically more civil relationship between the two powers, although any rollback of U.S. tariffs and restrictions on Chinese tech firms is unlikely in the near term.

Exports

Merchandise exports were up 18.1% annually in December (November: +20.6% year-on-year), markedly above market expectations. Surging exports in recent months have been driven by shipments of protective equipment and work-from-home electronics, which have both been in strong demand due to the pandemic. Meanwhile, imports were up 6.5% year-on-year (November: +3.9% yoy), indicative of solid domestic demand.

As a result, the merchandise trade balance rose from the previous month, recording a USD 78.2 billion surplus in December (November 2020: USD 75.5 billion surplus; December 2019: USD 47.3 billion surplus). Lastly, the trend improved, with the 12-month trailing merchandise trade balance recording a USD 535 billion surplus in December, compared to the USD 504 billion surplus in November.

Looking ahead, export growth is set to stay elevated in Q1, supported by a highly favorable base effect (given China was in the grips of the coronavirus outbreak in Q1 2020) and continuing high demand for pandemic-related goods. However, export growth should then moderate markedly later in the year.

Source: FocusEconomics Asia Pacific Consensus Forecast November 2020

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