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China's GDP Recovery

JANUARY 19, 2021 | BY Kaia Parv

As we pass the one-year anniversary of the first COVID-19 case recorded in Wuhan, China’s economy has come back roaring. The world’s second largest economy, currently around US$ 15.4 trillion, is the only major economy to record a positive growth in 2020. China’s output grew 2.3% in 2020, at the back of strong demand for its products, such as medical supplies and pharmaceuticals. But also the ‘work from home’ theme helped to boost China’s exports, given China is the largest manufacturing and assembling hub for technology. The importance of Chinese exports can’t be understated – according to Jefferies bank, China’s share of worldwide exports has grown to all time high of 14.8%.

Despite the weak first quarter when the economy contracted -6.8%, the subsequent quarters showed a fast recovery of +3.2% in Q2, +4.9% in Q3 and +6.5% in Q4. IMF projects that the U.S. and Eurozone economies are going to contract respectively -3.6% and -7.4% in 2020. Whilst China has been able to contain the spread of the virus relatively effectively using draconian measures, there have been recent flare ups in Hebei region. This has resulted in new lockdowns just weeks away from Lunar New Year celebrations, the main holiday in China, when hundreds of millions of people would travel across the country and the world to celebrate.

China has also been the only major economy that has managed to pull the economy out of a slump without excessive monetary and fiscal policies. M2 money supply has only grown 10% (vs U.S. +25%), helping to bolster USDCNY exchange rate. USDCNY has gained 6.8% in 2020, to 6.4922 – levels last seen in 2018.

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