China to lead global economic rebound in 2021

Economic activity in China has normalized faster than expected aided by an effective pandemic-control strategy, private investment and consumption, and improved consumer and business confidence, according to World Bank

China to lead global economic rebound in 2021
China's GDP to grow 2% this year and accelerate to 7.9 percent next year: World Bank. Photo: Reuters. 

(ATF) Given that it was a country where the Covid-19 pandemic began a year ago, China has pulled off a near economic miracle, says the World Bank.

In the fiscal year 2020-21, China will be the only G20 country to recover from the coronavirus by posting economic growth, and could also report an economic expansion of 7.9% in the following year, a World Bank report, “From Recovery to Rebalancing” said on Wednesday.

The question remains, however: How did China achieve positive growth this year while the rest of the world plunged into economic despair?

First, the government placed tight restrictions around Wuhan early, the epicentre of the virus, including strict lockdowns in the Hubei province, affecting about 57 million people - a move that some said controversial but proved effective, nonetheless.

As a result, by early April while students returned to school, most of China reopened for business and industrial production recovered that also led to increased automobile and domestic airline ticket sales, and a marked increase in domestic tourism.

Many of these steps actually fit Beijing's goal of turning China's export driven economy to one more reliant on domestic consumption.

While the West faltered

Yet, as China was successfully containing the deadly virus, it was just starting to spread globally, including in the US with dire consequences. China also exercised fiscal restraint as opposed to its western counterparts by resisting the urge to have its treasury print money by offering large stimulus packages. 

The US, EU and Japan, all top China competitors, issued stimulus packages of $1 trillion or more, respectively. Adding insult to injury, Washington is embroiled in another politically charged stimulus fight as the final days of the Trump administration grind to a close.

White House economic advisor Larry Kudlow told FOX News last week that the US economy should grow next year between 4% to 5%, all the while complaining that the economy was constrained this year due to lockdowns, especially in New York and California. “These “misguided [lockdown] policies were killing small business, he added. “If schools and businesses can reopen then the economy is going to boom.”

Kudlow's forecast, however seems a bit high. Most analysts see the US economy growing around 3.5% next year. Yet, to reach that number more pieces have to fall in place, including how quickly the US can reign in fresh Covid infections, reduce overall cases and distribute its two newly approved Covid-19 vaccines. As such, the first two quarters for the US could still see economic stagnation if not more outright contraction, dragging down economic growth for much of the year.

A weaker dollar 

The US dollar in 2020 saw its weakest performance since at least 2017, according to a NASDAQ report. This is due to a number of factors, including a very dovish US Fed that micromanaged the economy to keep it from slipping into deeper recession or even worse. 

The Fed mostly dampened demand for the greenback due to its massive stimulus measures and easy money policy, causing a knee jerk response as investors ploughed funds into the US stock market seeking any kind of return in a near zero interest rate climate. 

A weaker dollar has also been forecasted for 2021. Since most commodities are traded in dollars, this should bring price relief.

Moreover, since most of Asia has been impacted less by the Covid-19 pandemic than the rest of the world, economic activity has bounced back quicker with increased buying for several commodities, ranging from soft commodities like soybeans and corn to more industrial commodities like iron ore, lead, zinc and nickel. 

A weaker greenback is also beneficial for emerging market countries that borrowed in dollars and need pay down their debt.

Though economic activity in so-called developing Asia is projected to contract by 0.4% this year, it's expected to tick upward toward a healthy 6.8% in 2021 as the region moves toward recovery from the Covid-19 pandemic, according to a recent Asian Development Bank (ADB) report. 

China, however, will still be stealing the spotlight in 2021. At a Paris news conference earlier this month, OECD Secretary General Angel Gurria said the group forecasted that the global economy would grow 4.2% next year after contracting by the same 4.2% this year. It added that the global GDP rebound will be led by a strong recovery in China.

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China GDP China's Economic Recovery World Bank Wuhan Hubei Province