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With the ongoing stringent lockdowns in Saudi Arabia and the UAE, market stakeholders are trying to understand how long this pandemic will continue to restrain their economies and what the recovery will look like when they emerge from their respective lockdowns.
Though fundamental scenarios could be different, a close look at how China is navigating though the days post-lockdown could give us some answers.
The lifting of the 11-week lockdown in Wuhan, the epicentre of the COVID-19 pandemic, signifies a moment where all lockdown measures across the country have been removed and some form of normality can start to return.
Knight Frank Research stated that weekly activity in the Chinese economy is estimated to be at over 85 percent when compared to the same period a year earlier. Whilst these initial data points may underpin a more optimistic outlook, there are many reasons to be cautious given the Chinese economy’s reliance on overseas demand; a downturn in overseas demand is likely to result in a more fragile domestic economic backdrop.
The number of COVID-19 cases peaked in China on 17 February 2020, 28 days after the World Health Organisation started publishing official data for China.
Congestion data from TomTom’s Traffic Index shows that roughly two weeks after this, major cities in China witnessed congestion levels starting to return to, and in some cases surpass, pre-lockdown levels. The dip in congestion volumes on April 4, 2020 is due to the Qingming or Ching Ming Festival (Tomb-Sweeping Day).
China congestion levels.
Fitch solutions revised China’s 2020 real GDP forecast to 1.1 percent from 2.6 percent previously, to reflect the impact of a worsening global economic outlook. Though private consumption and net exports are expected to continue to drag heavily, the country risk and industry research agency rules out a full-year contraction.
"Targeted fiscal stimulus should see fixed investment growth come in relatively flat, while strong government consumption will provide the bulk of support and prevent a full-year contraction in 2020, Fitch said in its research note, COVID-19 Growth Revisions.
China real estate market trends
China’s property market is unlikely to witness a recovery similar to congestion volumes, given the economic impact the pandemic has had on a country and global level.
According to Knight Frank, during the early stages of the year, residential transaction volumes witnessed up to almost 100 percent annual daily declines.
In the year to date 12 April 2020, transaction volumes across China’s 30 major cities were 37 percent lower compared to the same period a year earlier.
This rate appears to be moderating so it will be worthwhile keeping a close watch as to how this trend develops. The data roughly shows that after just over a month of congestion activity returning to normal, transaction volumes appear to rebound, yet it remains to be seen how long this will be sustained.
If the data from China holds true, it is possible that, once the curve has flattened across the region, traffic volumes will normalise after two weeks and transaction volumes will begin recovering a month later.
Economy to rebound
"We are seeing signs of recovery," Gita Gopinath, Economic Counselor and Director at IMF's Research Department said about China where containment measures started coming out in the second quarter.
"But, again, we have to keep in mind that the rest of the global economy is now in the grips of the pandemic. And there are severe containment measures around the world, so that would have a big negative impact in terms of external demand on China's growth," Gopinath said at IMF's World Economic Outlook press briefing.
Malhar Nabar , Division Chief, Research Department, IMF said: "It's important to recognize that there are signs of normalization now. The economy is getting back to operating. It's a very gradual normalization."
The global organisation observes that there could be strong global headwinds to the recovery for China. However, with various policies supporting the recovery, China could register positive growth this year after the setbacks of the disastrous pandemic.
"Overall, with the momentum the economy had going into this crisis and the policy space that the economy has, we think it's poised to register positive growth this year, albeit modest positive growth relative to the strong growth rates that we've been accustomed to seeing from the Chinese economy in the past," Nabar said.
(Reporting by Seban Scaria, editing by Daniel Luiz)
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