China's economic recovery after Covid-19: What can we expect?

China's economic recovery after Covid-19: What can we expect?

April 2020

While the world gets to grips with the novel Covid-19 pandemic, economists are looking towards China to see what effect the quarantine period may have on the global economy.

Positive signs of normality

The good news is that early signs suggest China has experienced an immediate economic bounceback upon the release of its lockdown situation. This is remarkable, particularly given that China's most prominent industries - manufacturing and global export - continue to be affected by the global lockdown and a significant reduction in demand.

However, with China only just beginning to re-open its doors to normal life, pent-up demand and supply are rapidly being released and people are keen to spend again. Just look at the Hermès store in Guangzhou as an example. The flagship store hauled in an incredible $2.7million in sales in just one Saturday after re-opening, as VIPs flocked to buy rare designer goods, in a phenomenon that is already being called 'Revenge Spending'. Chinese social media was also flooded with positive retail messages from prominent Key Opinion Leaders, with the country's increasingly affluent middle classes ready to spend and to continue China's impressive growth trajectory.

What does this mean for Western economies?

This experience heralds positive signs for the rest of the world and Economists believe that the UK, US ad other Western economies may be poised to experience a 'V-shaped' recession and recovery. This would mean that, once quarantine periods were lifted, markets would rapidly return to normal, as pent-up demand and supply are released, and life is able to continue freely once again. The expectation is that the stock markets will also begin to rebound too, as investor confidence returns. Without underlying and systematic issues which would create a 'genuine' recession, markets can return to free operation and global trade can begin again - perhaps in an accelerated way. Many industries may actually see a spike in business, as pent-up demand releases and buyers seek to catch up on their orders.

What is the takeaway for UK businesses?

The immediate predictions for Western economies may have been grim, but the prospect of a rapid global bounceback is a promising one. Before the Coronavirus pandemic, markets were operating freely, growth was good and there were few signs of any impending systemic issues that might herald a 'true' recession. In fact, many of the world's global stock markets had just experienced some of the longest bull markets in history.

This suggests that any interim deflationary period is likely to be brief. Revenge spending by consumers is likely to see a rapid release of demand, and a keenness to spend. consumers will want to enjoy their lives once again once they can travel and enjoy leisure, entertainment and retail without restrictions.

Building links with China

Western companies with Chinese market connections should use this period to develop their networks and business opportunities. Other areas of the global market may experience a slowdown, but China is ahead on its Covid timeframe and open for business once again. By investing now in business relationships with Chinese partners, Western firms can look forward to a profitable future once they are free to operate freely and without restriction again in the coming weeks and months.

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