China Turns COVID Recession into Economic Victory

While Europe and the US are experiencing a «W» recovery, known as the double recession, China is walking a better path, a «V» recovery.

China is the only major economy expected to expand this year.

According to the IMF, China’s GDP will grow by 1.9% in 2020 and 8.2% in 2021.

Manufacturing activity in the second-largest economy in the world expanded for the ninth month in a row.

The official Manufacturing Purchasing Managers’ Index (PMI) for November came in at 52.1, according to the National Bureau of Statistics.

USD/CNY fell from 7.20 at the end of May to 6.52 in December and it looks like there is more downside ahead.

How Coronavirus (COVID-19) affects the Global Economy

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In the following report, we will study together what are the recovery paths that await economies around the world, especially after the awaited vaccines entered the scene with their race against time to save lives and the economy from this virus.

What looked like a sharp V-shaped recovery of growth – the best case scenario – after the first lockdown due to the pandemic now looks like a (W) – the worst-case scenario.

Among the myriad of letters and signs economists use to describe the economic outlook and the future of the world that has been turned upside down by a virus called “Covid-19”, the encouraging news about the Pfizer vaccine is a game-changer for global growth.

The following are some of the figures used to describe the outlook during unusual times, and what is the expected path for major economies – United States, United Kingdom, Eurozone, and China.

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1. The Shape of “W” Letter

Also known as a double-dip recession.

This scenario offers an attractive trajectory to recovery; just to go back to a sharp decline again, and then finally the economy enters the full recovery period that may last two years or more.

The second stage of a double-dip recession is less severe than the first because consumers and businesses are more prepared.

This scenario is the most likely outcome for major economies such as the United States and Europe, hit hard by the second wave of the coronavirus and re-restrictions on the economy and Iockdowns.

For example, the economic recovery in the Eurozone in the third quarter due to the reopening of the economy after the first lockdown is expected to turn into another contraction in the fourth quarter of 2020.

Chinese Economy after Coronavirus Pandemic

2. The V-Shaped Recovery

On this path, we see that the sharp fall in the economy is quickly and immediately followed by a rapid recovery that returns to its previous peak in less than a year as if nothing had happened, supported by economic measures, stimulus, supportive policies, and strong consumer spending.

The “V” pathway, best-case scenario, remains the expected base letter for Asia, which hasn’t been severely affected by the second wave. China is the only major economy to expand this year, according to the IMF, which expects growth of 1.9% in 2020 and 8.2% in 2021.

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3. The Square Root “V”

The square root indicates a decline, followed by a rebound, and then the economy will walk a flat-line.

This trajectory is more bullish than the double-dip recession (W) but less optimistic than the (V) shape.

This figure shows that although renewed lockdowns will cut growth, they won’t necessarily lead to further growth decline and contraction.

That is the expected path for the UK after it starts the vaccine distribution this week.

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4. The Greek “μ”

If Eurozone growth contracts less sharply than expected, the recovery could take the form of the Greek letter “μ” -a slightly less severe outlook than the double recession marked by the letter “W”.

The Eurozone economy expanded by 12.7% in the July-September period (Q3), after contracting by 11.8% in the previous quarter.

The larger-than-expected rebound is supposed to raise the average growth in 2020 and 2021, which would erase the impact of any contraction in the fourth quarter of 2020.

The European Commission said that the economy of the 19 countries that use the euro would grow by a return to the “pre-epidemic level” before 2023. 4.2% for next year.

It also mentioned the economy is not expected to

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5. The Letter “K”

This is another scenario under consideration for the US economy in the shape of the letter “K”, in which sectors follow different contradicted paths.

Some sectors such as manufacturing, technology, and retail are regaining strength and recovering with the easing of restrictions, while other sectors such as services, travel, tourism, and entertainment are suffering until the impact of the vaccine appears on the economic data.

Federal Reserve Chairman Jerome Powell didn’t say literally that the recovery path of recession in the US economy would take the shape of a K, but that is what he meant when he expressed his fear that the United States would see a “two-track recovery” in which things improve quickly for some people while remaining bad for others.

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Finally, recessions are difficult for anyone to experience.

However, expecting the recovery path could make it more bearable.

Be patient – we are on the way to break through this crisis.