March 2, 2020

China’s PMIs slumped worse than during the Great Financial Crisis

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In Short

China’s February PMIs slumped to levels worse than during the Great Financial Crisis in 2008/2009.
China’s PMIs slumped worse than during the Great Financial Crisis
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Highlights:

  • China’s February PMIs slumped to levels worse than during the Great Financial Crisis in 2008/2009. This suggests that also monthly indicators to be published in mid-March will come in poorly.
  • However, fresh infections continue to decline and will likely peter out during the first half of March. This will open more and more the way for consumption to improve and capacity utilization to normalize.
  • Thus, we continue to see the trough in China’s GDP growth in Q1, but in the light of the latest PMIs we revised our Q1 growth forecast drastically down to around 2.5% yoy, followed by 4.5% – 5% in Q2. Thereafter, growth should overshoot.
  • Moreover, we see a large fiscal package once the virus is under control. Speculations currently run as high as during the Great Financial Crisis, implying a package of around 10% of GDP. By contrast, we assume that Beijing will accept some slowing in growth during 2020 and also keep an eye on debt sustainability. Monetary policy will also continue to cut rates. All in, we expect GDP growth at 5% in 2020, down from 6% in 2019.

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CHINA’S PMIS SLUMPED WORSE THAN DURING THE GREAT FINANCIAL CRISIS

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