So, the question is - just how 'manufactured' will this smorgasbord of Chinese macro data be? As v-shaped as the incredible 'survey' data? Or as realistic as the traffic and pollution numbers suggest?
The red oval is the ChiNext stock index's reaction to the worst of China's virus impact... green is PMI and red is the macro surprise index (which will be smashed one way or the other tonight)...
Of course the big one tonight is Chinese GDP growth. The median forecast of economists surveyed by Bloomberg was for a 6% contraction in the first three months of the year, when the coronavirus outbreak forced an unprecedented lockdown of factories, stores and schools across the country (ING Bank saw a +3.6% print and at the other end of the spectrum, Capital Economics forecast a 16.0% contraction in GDP).
“China’s economy is going to recover only gradually,” said Scott Kennedy, senior adviser and trustee chair in Chinese business and economics at the Center for Strategic & International Studies.
“If the government over-stimulates, the only result will be a lot of wasted spending and greater debt. And that won’t help resolve the core problem of China’s economy: low productivity.”
Additionally, the government will also release data for retail sales, fixed asset investment and industrial output for March, offering the most complete picture yet of the economic destruction since the virus outbreak (but we have already seen the collapse in this monthly data for February and expectations are for a rebound or slowdown in the collapse).
And so here we go... the magic number for tonight is... a miss - Chinese GDP shrank by 6.8% from a year ago (considerably worse than the 6.0% drop expected) and the worst drop on record (since 1992)
As Bloomberg notes, the sharp contraction underscores the pressure that Chinese policy makers face as they attempt to revive the economy without nullifying efforts to contain the virus. The continued spread around the world also threatens to add fresh downward pressure on China’s exporters in a feedback loop that could throw millions out of work.
“The economic loss is unprecedented,” Pacific Investment Management Co. economists wrote.
“The global recession will hit exports primarily in the second and third quarters of 2020, domestic demand is still hampered by quarantine curbs, and stimulus transmission is weak amid spreading bankruptcies and job losses.”
And the rest of the Chinese data improved marginally but:
Industrial Production fell 8.4% YTD YoY (better than -10.0% exp)
Retail Sales fell 19.0% YTD YoY (worse than -12.5% exp)
Fixed Asset Investment fell 16.1% YTD YoY (worse than 15.0% exp)
Property Investment fell 7.7% YTD YoY
Surveyed Jobless Rate improved from 6.2% to 5.9%
As Bloomberg's Asia Economy Team Manager, Malcolm Scott notes, the March numbers probably tell us a bit about human psychology as well as economics -- you can turn factories back on and rev up production lines, but it’s tougher to restore consumer confidence that’s been so badly shaken. And while the consumer plays a larger role in China’s economy today than in the past, it’s nothing like the contribution in most advanced economies. That could be a bad precedent globally.
Finally, International Monetary Fund Chief Economist Gita Gopinath said in an online media briefing on Tuesday that the fund is tipping 1.2% growth for China this year.
“The rest of the global economy is now in the grips of the pandemic and there are severe containment measures around the world so that would have a big negative impact in terms of external demand on China’s growth.”
However, “until there is a usable vaccine, it is tough to see life getting anything like being back to vague normality,” warned Jim O’Neill, Chair of Chatham House and the former Goldman Sachs Group Inc. chief economist who coined the term BRIC.
And for those craving the next stimulus move by Chinese officials, Shang-Jin Wei, a China expert at Columbia Business School in New York and formerly chief economist of the Asian Development Bank, warns: “Prevention of a return or the ‘second wave’ of the virus outbreak is more important than getting a high growth rate for the remainder of the year.”