China abandons GDP growth target
The economic news that has been surfacing every day since the beginning of the year continues to prove the world has entered one of the worst economic crises in decades.
The latest word from China adds another grim note. On May 22, the Chinese government decided to break a more than 25-year-old tradition and not provide any target guidance for the country’s economic growth this year, indicating the economic consequences of the coronavirus are not only devastating but also still unclear.
GDP numbers for the first quarter have indicated a recession in 2020 for most developed economies, while also warning of further downside risk. In its World Economic Outlook, April 2020: The Great Lockdown, the International Monetary Fund states, “There is extreme uncertainty around the global growth forecast. The economic fallout depends on factors that interact in ways that are hard to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, the extent of supply disruptions, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioural changes (such as people avoiding shopping malls and public transportation), confidence effects, and volatile commodity prices.”
The various shapes of recovery
Uncertainties and speculation (both positive and negative) have resulted in a wide range of projected shapes for future recovery.
As the stories about the development of vaccines, the use of new and existing drugs and the overall daily decrease in the number of new cases in many countries continue, there seem to be fewer arguments for “L” (a “hockey stick”) and “W” shapes. “U” is attracting more supporters based on the belief economic affairs will become much better in the second half of the year and more optimists are sticking with their hopes for “V,” as they expect a quick rebound after reopening of the economies gains momentum.
One feature common to all these shapes is that the low point seems to have already passed.
For the construction sector, it was the time when building sites in different countries started closing due to safety issues related to COVID-19. Many international construction companies decided to freeze all their projects until they acquired a better understanding of the coronavirus implications on their employees. This resulted in a downturn, with the IHS Markit purchasing managers’ survey for European construction in March falling to 33.5 from 52.5 in February, representing a huge deterioration. However, more recent signs indicate that despite the sharp drop, the construction industry has been able to bounce back relatively quickly.
According to the company’s press release, around 10 days after STRABAG announced the temporary halt of work on its construction sites in Austria (on March 18), the largest Austrian construction group gradually began resuming its activities.
99.1% of Chinese industry up and running again
About two months earlier, China announced it would shut down over two-thirds of its economy. From the date of the Chinese Lunar New Year on Jan. 25, many companies across the mainland halted production and construction crews paused work as an extension of the holiday break. However, according to Xinhua news agency, on Feb. 26, the Ministry of Housing and Urban-Rural Development issued a circular, urging enterprises in the sectors of housing and infrastructure construction to resume work in an orderly manner.
Due to the limited amount of data available at the early stages of the contagion, most epidemiologists, politicians and economists chose to rely on conservative models and projections while assessing potential health and economic threats, as well as the damage and length of the recovery. However, as the Chinese economy recovers, it has become clear that such a relatively short halt of construction activities did not result in irreparable damage to the industry.
As of today, 99.1 per cent of major industrial firms in China have resumed working. The country’s real estate sector is experiencing a recovery in demand. According to Savills China Research, in April alone, about 107 million square metres of new homes were sold across the country, only a slight decrease (-1.5%) from the same period a year ago. In addition, the Chinese government is planning to further boost the country’s economic recovery through infrastructure investments totalling $1.4 trillion over the six years to 2025. The new infrastructure developments will be directed somewhat towards new transportation projects, like high-speed railways, but mostly towards major high-tech projects including development of 5G networks, AI, data centres, EV charging stations, industrial internet, etc.
Lockdown a spur to technological innovation
In its The Great Lockdown report, the International Monetary Fund expects a dramatic improvement in global economic development in 2021. This depends on finding ways to successfully deal with the consequences of the coronavirus and the impact of the lockdown on global consumption and production. Also, it springs from the low base created by the economic downturn this year.
Lockdown, social distancing and other limitations that many people in the world have been experiencing are likely to trigger new technological and social developments related to health care, the labour force, migration, real estate and transportation. Further enhanced by large government investments in infrastructure, might the world be surprised by another “letter shape” of recovery? Maybe a “J”?
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