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FX.co ★ Hit by coronavirus: 3 scenarios of China’s economic recovery

Hit by coronavirus: 3 scenarios of China’s economic recovery

Some analysts are already revising their outlook for the global economic growth amid the new COVID-19 virus outbreak and its negative impact on China. Economists at Morgan Stanley have issued an extended forecast outlining three possible ways of China's economic development.

Hit by coronavirus: 3 scenarios of China’s economic recovery

The fast-spreading infection is threatening not only China but the whole world as well, thus keeping global markets alert. Morgan Stanley analysts expect the industrial production in China to reach 60% to 80% of the usual levels by the end of this month and be back to normal by mid-March 2020. Amid the ongoing uncertainty around the virus epidemic, experts came up with three possible scenarios of China’s economic growth.

Hit by coronavirus: 3 scenarios of China’s economic recovery

Quick recovery

In this scenario, the Chinese economy may enter the quick recovery phase despite the disruption to the manufacturing sector in the country. Assuming the coronavirus peaks in February or March 2020, China’s first-quarter GDP growth rate is expected to come in at 5.3%, analysts at Morgan Stanley note. For the first half of the year, economic growth in China may slow to 5.6%, while in the next 6 months GDP may grow by 6.2%. At the end of 2020, the overall forecast for China’s full-year GDP will remain at 5.9%.

Hit by coronavirus: 3 scenarios of China’s economic recovery

Gradual recovery

Under this scenario, the world’s second largest economy will gradually stabilize, although the country’s industrial sector will remain affected by the consequences of the coronavirus outbreak. The virus infection will also reach its peak in February and March. In this case, first-quarter GDP growth will contract to 4.2%. According to economists at Morgan Stanley, China’s growth rate in the first half of 2020 is likely to stay below 5%, whereas in the second half of the year it may reach 6.3%. Under the second scenario, full-year GDP growth rates will not exceed 5.7%.

Hit by coronavirus: 3 scenarios of China’s economic recovery

Slow recovery

If the manufacturing activity in the country remains seriously disrupted, this may lead to a slow and weak recovery of China’s economy, analysts at Morgan Stanley warn. According to their forecast, if the peak of the virus outbreak falls on April 2020, China’s industrial sector will have been already derailed in March. Under this scenario, China’s economic growth in the first quarter could fall to as low as 3.5%. The GDP growth rate, in this case, is expected to reach 4.6% in the first half of the year, while later it is unlikely to exceed 6.5%. By the end of 2020, specialists estimate the full-year GDP growth to be 5.6%.

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