China's economy expected to recover from COVID-19 while risks lingering

China's macroeconomic indicators are expected to improve as its economy reopens with downward risks remaining to be tamed, according to economists.

A customer purchases beverage in Jiangbei district of Chongqing, southwest China, March 23, 2020. [Photo/Xinhua]

The Chinese economic activity data for March is expected to improve as factories reopened and some workers returned to cities to work after the extended break caused by COVID-19, said a research note by Katrina Ell, an economist with Moody's Analytics, on Thursday.

Though there is a wide confidence interval around China's economic growth outlook, "we expect growth to begin recovering in the second half and continuing next year, albeit at below prior expected rates," Peter Perkins, founding partner of macroeconomic research firm MRB Partners, said on Friday.

Corporate earnings for Asia excluding Japan would manage to expand 1 percent in 2020 while the earnings in developed economies would fall by 26 percent this year, according to a recent report by Swiss multinational investment bank UBS AG.

Still, the Chinese economy is far from returning to pre-COVID-19 levels as consumption remains subdued and supply chain continues to be in disarray, said Ell.

With the spread of COVID-19 globally, manufacturing and exports would remain subdued even if the virus is contained continuously in China, Ell added.

While the Chinese economy is already in recovery mode, the big uncertainty is the extent to which it can be re-opened on a sustained basis, said Perkins in an interview with Xinhua.

Sectors of the Chinese economy will remain significantly constrained for some time, notably those where people congregate in close proximity, said Perkins.

Perkins said that many export-oriented sectors will be hampered by weak demand in end markets, including the United States, Europe and much of Asia.

"We expect China to largely return to work in the coming weeks, but face a very bad external-demand environment as other economies experience a longer version of China's one-month shutdown," said a recent research note by Bank of America Global Research.

Ell said that China's recovery from the worst of novel coronavirus outbreak will have positive spillovers for the Asian region as it is the largest trading partner of most economies in Asia.

Countries in Asia have shown others how to respond to the COVID-19 crisis effectively, according to Bank of America Global Research.

"Both policymakers and the public in many economies have not learned the lesson from China: the most effective policy is a quick and strict lockdown," the research note added.

Ell expected the U.S. economy would contract by 5.2 percent in 2020 following a 2.3-percent growth in 2019. The shrinkage of the U.S. economy is problematic as a high proportion of Asian-produced goods has the United States as a final source of demand, said Ell.

Albeit mindful of risks, the base-case scenario is that global growth will resume in the second half of 2020, said Perkins.

The increase in the total and active COVID-19 cases is slowing in various European countries, indicating that countermeasures have been effective, and a gradual re-opening of the economy could soon begin, noted Perkins.

Still, Bank of America Global Research has revised its forecast for world economic growth to -2.7 percent from 0.3 percent, citing the lack of effective policy response to control the spread of coronavirus in developed markets and some emerging markets.