China: Economic blow in Q1, strong rebound in Q2 – Nordea

The Chinese PMIs falling to record-lows confirmed the coronavirus has a severe impact on the Chinese economy in Q1. Amy Yuan Zhuang, an analyst at Nordea, expects a rebound in Q2, which mitigates the full-year impact.

Key quotes

“The Caixin/Markit PMI fell to 40.3 and the official to 35.7, worse than during the financial crisis in 2008.”

“Despite the gloomy picture for February and thereby Q1, Chinese markets are rising. The CNY and CNH continued strengthening against the USD, fuelled by Fed rate cut expectations.”

“Based on the current situation, we continue to expect a significant blow to the Chinese economy in Q1, followed by a strong rebound in Q2. For the whole year, we think the GDP growth will drop by 1% point to 5% compared to our baseline.”

“Although we mainly see the risk to the economy to tilt on the downside, there is also room for some upside surprises. That comes if the government, especially local authorities, launches bigger than expected stimuli.”