China's economic recovery from coronavirus is accelerating and is positioned to drive global GDP, according to British economist Jim O’Neill.
He considered China's economy as a critical marginal driver of global GDP.
The former chief economist at Goldman Sachs explained that the recent Chinese consumer spending data indicated the speed of China's economic recovery.
In August, China saw a 0.5% increase in retail sales from a year ago, the first positive growth for 2020 so far.
“I suspect Chinese GDP growth could actually end 2020 as net positive still,” O’Neill said during an interview with CNBC. “By end 2021, Chinese GDP growth will have possibly even made up for, not only the losses but the loss in the trend also.”
Other analysts, including the Asian Development Bank, also think China’s economy will turn out better than the rest of the world in 2020.
China's GDP rose by 3.2% in the second quarter of this year, compared to a year ago. This figure exceeded predictions and led to a rebound from the first-quarter contraction.
In the same interview, O’Neill said that Brazil, India, and Russia are “considerably behind” in terms of economic recovery. “I suspect — with a lag — they will share in the V-like immediate bounce back, partially in Q3, but especially in Q4 2020,” he said.
“Beyond the impact of Covid, each of the other three, all have various structural issues to deal with,” O’Neill added by email. “In Brazil and Russia’s case, it effectively is to — somehow — reduce their excessive dependency on the commodity cycle, whereas, for India, it is to truly embrace productivity reforms that would allow their positive demographics to generate very strong GDP growth.”
“As I have said, China is well on the way to recovery. It is the country that really matters globally within the BRIC group ... and I suspect China will continue to be the most important marginal driver of global GDP,” O’Neill said.
Meanwhile, he said that declines in India will develop a “notable negative impact” on global growth while important structural reforms have to take place in Russia and Brazil.
“In India’s case as well, if the infection is gradually brought under control and the regional localized lockdowns are lifted as a result, we should start to witness stabilization in growth prints,” Radhika Rao, an economist at Singapore’s DBS Group, said by email. She pointed out such a possibility in the first quarter of 2021 with a rebound in the second quarter as the most remarkable.
Unbalanced pattern
In general, economists see China accomplishing the easiest part of recovery. However, the imbalance shaped by strong production and construction and weak consumer spending may last until next year. With this, the Chinese government is expected to spend time developing long-term structural reforms.
“China’s recovery is undoubtedly impressive, especially when compared to other major economies that are mired in the pandemic,” said Lu Ting, chief China economist at Nomura.
According to Zhang Kaihui, general manager of the Beijing branch of China Galaxy Securities, China may experience 2.4 percent economic growth this year and 5.9 percent in 2021.
“But [the numbers] don’t matter, what we are most concerned about is whether the economy is healthy, whether it can solve the employment problem and various contradictions. The data is not worth focusing on,” he said.
