China’s recovery is a positive risk for the global economy

In China, business indices are rising, with the Purchasing Managers’ Index (PMI) strongly increasing in February due to the revitalization of activities after the New Year holidays in January and the normalization of supply chains, writes economist Hrvoje Stojić in HUP’s Focus. In addition to the clear recovery of domestic demand reflected in the growth of the new orders sub-index (+3.2 points), major European exporters are pleased with the growth of export orders, for the first time in the last two years above the threshold level of 50 points. Moreover, China has become the second largest exporting power in the automotive industry, nearly surpassing Germany, whose exports have seen a strong decline from 4.5 million cars in 2018 to 2.5 million last year.

The PMI index for the manufacturing sector rose above expectations by 2.5 percentage points (pp) to 52.6 points, the highest level since 2012. At the same time, the PMI index for the services sector continues to rise to 56.3 points, thanks to further growth in personal consumption following January’s consumer ‘frenzy’.

The leading role of personal consumption in this year’s recovery is good news for European economies, for which China is the second largest export market after the USA. China’s commitment to self-sufficiency in new technologies supports the growth of strategic industries such as electric vehicles, renewable energy, and generally advanced manufacturing.

By the way, China has become the second largest exporting power in the automotive industry in just the last two years, nearly surpassing Germany, whose exports have seen a strong decline from 4.5 million cars in 2018 to 2.5 million last year. Moreover, regional governments are accelerating bond issuances to finance infrastructure projects.

However, caution regarding sudden optimism is always warranted. Namely, despite the slowing rates of decline in the real estate market according to official statistics, independent studies show that about half of the residential projects of large distressed developers have been on hold since July last year. It is not entirely clear to what extent the population can reduce the excessive savings (USD 660 billion) accumulated during the pandemic.

– At a level of 3.8% of GDP, it is comparatively low compared to the pandemic peak in the USA in the third quarter of 2021 of about 10% of GDP. Negative impacts on the local economy continue to arise from the general slowdown in global economic growth as well as trade and political tensions between China and the USA. Particularly in the area of new technologies after Japan and the Netherlands joined the USA in restrictions on the export of advanced semiconductor technologies, concludes Stojić.