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Ho Woei Chen, CFA, Economist at UOB  Group, suggests the Q1 GDP figures in China could be weaker than previously estimated.

Key Quotes

“China’s official manufacturing PMI plunged 14.3 points to a record low of 35.7 in February (Jan: 50.0) and this is well-below the previous record low of 38.8 in November 2008 during the Global Financial Crisis. The decline was broad-based across the key components of the manufacturing PMI as well as the size of enterprises covered in the survey. Production (Feb: 27.8; Jan: 51.3), new export orders (Feb: 28.7; Jan: 48.7), new orders (Feb: 29.3; Jan: 51.4) and employment (Feb: 31.8; Jan: 47.5) were all down sharply in February.”

“More worrying was the non-manufacturing PMI which fell by an even sharper 24.5 points to 29.6 in February (Jan: 54.1). The official non-manufacturing PMI has never fallen into contraction (defined as reading below 50) based on data since 2007 and the previous low was 50.8 in December 2008.”

“All these suggest that 1Q20 GDP would be much weaker than what was expected earlier especially since factories in China are expected to take longer to return to their capacity prior to the COVID-19 outbreak… The spread of COVID-19 outside of China is also another legitimate concern as it dampens global demand as well as the recovery in the tourism and private consumption demand in China.”

“Taking into consideration the downside risks, we have downgraded our growth forecast for China this year. We now expect 1Q20 GDP growth at 2.9% y/y which means that China may report quarter-on-quarter (seasonally-adjusted) GDP contraction in 1Q20, the first for the data that stretches back to 1992. We expect GDP growth to rebound to 5.3% y/y in 2Q20, 6.5% y/y in 3Q20 and 6.1% y/y in 4Q20. For the full-year 2020, GDP growth is likely to be around 5.3%, below the 5.7% that we have earlier projected.”