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China: GDP to expand at a slower pace in 2020 – UOB

In opinion of Ho Woei Chen, CFA, Economist at UOB Group, the Chinese GDP is seen expanding at a slower pace than initially predicted.

Key Quotes

“The first set of Chinese data for January showed further stabilisation in the manufacturing industry and some improvements in the services industry. China’s official manufacturing PMI remained in expansion in January for the third consecutive month, printing at the threshold of 50.0 and down 0.2 point from 50.2 in the two preceding months.”

“While the January PMIs printed in line with our expectation that China’s economy is set to stabilise or even pick up after the Phase One trade deal with the US, the 2019-nCoV outbreak has now posed a new threat to the outlook… With businesses operating below capacity and more quarantines reported, China’s manufacturing PMI could potentially drop towards 48.0 in February which would be the lowest since the Global Financial Crisis when the reading fell to as low as 38.8 in November 2008.”

“Taking into account of current sharply weaker sentiment and expectation that the coronavirus outbreak will peak in at least three more months’ time in late-April to early-May, subsequent data from China is expected to pull back sharply.”

“Assuming that the cases peak in late-April to early-May as advised by health experts, we expect China’s 1Q20 GDP growth to fall to 5.1% y/y before recovering slightly to 5.6% y/y in 2Q20 (earlier forecast 5.9% for both quarters)… Overall, we now forecast China’s full-year 2020 growth at 5.7%, 0.2% point lower than earlier forecast of 5.9%. Should the 2019-nCoV outbreak last longer than expected, China’s growth could fall closer to 5.0% in 2020.”

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