China: 2020 growth forecast cut further on Covid-19 – ABN Amro

FXStreet reports that PMIs illustrate the severity of disturbances caused by Covid-19 crisis as the car sector is hit by extended post-LNY lockdowns. Economists at ABN Amro adjust Chinese growth forecasts a bit further down.

"We expect China's PMIs to improve sharply again in the coming months, as production capacity will be restored."

"The corona crisis is also preventing a rebound in the car sector, which has been one of the drags to Chinese growth last year. The sharp drop in production and sales in January can be partly attributed to the Chinese New Year holiday break. However, the extended post LNY-lockdowns and other draconian measures taken will hit production and sales even more."

"The central bank also announced to lower bank RRRs further: after reducing them by 400 bp in 2018-19 and 50 bp (to 12.5%) in January 2020, we expect another 150 bp in RRR cuts in the course of this year."

"We expect the Chinese authorities to continue with these policies to cushion the blow from the headwinds created by the corona crisis."

"We still assume that the disruptions from the corona crisis will prove temporary, and that economic activity will normalise in the course of March. We now foresee negative qoq growth in Q1, still followed by a clear pick-up in quarterly growth in subsequent quarters."

"We have revised our annual growth forecast for 2020 a bit further down, to 5.3% (from 5.5%; and down from 5.8% pre-corona crisis). Reflecting spillover effects from a stronger second half of the year, we have revised our 2021 growth forecast a bit higher, to 6.0% (from 5.8%; and up from 5.6% pre-corona crisis)."