CHINA. MAPPING THE RECOVERY IN 2009-10
Qing Wang, Morgan Stanley, February 25, 2009
The Beginning of a Recovery?
Recent data indicate improvement, or ‘less-bad’ developments, in the underlying economic situation, raising hopes that China’s economy may have begun to recover. Many wonder what the potential recovery path in China will look like over 2009-10. In this context, the recent strong rally of China’s onshore A-share market has been interpreted by some market observers as leading signs that an economic recovery is underway.
V-Shaped and W-Shaped Recovery in 2009
Our assessment of China’s economic outlook remains unchanged, with GDP growth forecast at 5.5% for 2009 (see China Economics: 2009 Outlook Downgrade: Getting Much Worse Before Getting Better, January 18, 2009). Moreover, we expect the economy to get worse before getting better, with a V-shaped recovery over the course of 2009: after the sharp deceleration in 3Q-4Q08, the headline year-on-year GDP growth rate is expected to drop further and stay low in 1Q and 2Q before staging a rebound in 2H09.
However, in terms of sequential quarter-on-quarter growth, we think the economy will likely demonstrate a W-shaped recovery during 2009. GDP growth started to decline in 3Q08 and bottomed in 4Q after a hard-landing of the industrial sectors. We expect the economy to register rather strong positive growth in 1Q09, as de-stocking runs its course and trade finance normalizes to some extent. However, sequential growth should moderate again in 2Q09 after the technical rebound in 1Q, as the headwinds facing the economy likely remain strong. We envisage growth to accelerate in 3Q and 4Q09, as the effect of policy stimulus kicks in and G3 economic growth bottoms in 3Q and makes a tepid recovery in 4Q.
Recent data indicate improvement, or ‘less-bad’ developments, in the underlying economic situation, raising hopes that China’s economy may have begun to recover. Many wonder what the potential recovery path in China will look like over 2009-10. In this context, the recent strong rally of China’s onshore A-share market has been interpreted by some market observers as leading signs that an economic recovery is underway.
V-Shaped and W-Shaped Recovery in 2009
Our assessment of China’s economic outlook remains unchanged, with GDP growth forecast at 5.5% for 2009 (see China Economics: 2009 Outlook Downgrade: Getting Much Worse Before Getting Better, January 18, 2009). Moreover, we expect the economy to get worse before getting better, with a V-shaped recovery over the course of 2009: after the sharp deceleration in 3Q-4Q08, the headline year-on-year GDP growth rate is expected to drop further and stay low in 1Q and 2Q before staging a rebound in 2H09.
However, in terms of sequential quarter-on-quarter growth, we think the economy will likely demonstrate a W-shaped recovery during 2009. GDP growth started to decline in 3Q08 and bottomed in 4Q after a hard-landing of the industrial sectors. We expect the economy to register rather strong positive growth in 1Q09, as de-stocking runs its course and trade finance normalizes to some extent. However, sequential growth should moderate again in 2Q09 after the technical rebound in 1Q, as the headwinds facing the economy likely remain strong. We envisage growth to accelerate in 3Q and 4Q09, as the effect of policy stimulus kicks in and G3 economic growth bottoms in 3Q and makes a tepid recovery in 4Q.
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