China's economy has bounced back from coronavirus in a V-shaped recovery, but 'now comes the hard part,' analysts say

• Chinese industrial production bounced back in a 'V-shaped' recovery in April, but research shows its momentum is likely to fade in the short-term.
• A global rebound may be impacted by slow-moving investment in sectors reliant on household spending, according to Pantheon Macroeconomics.
• China's industrial output rose 3.9% in April year-on-year, after sliding in the first three months of the year during coronavirus lockdown.
• "Only so much inventory build is justifiable in the current climate, even if external demand roars back in the third quarter," Freya Beamish, chief Asia economist at Pantheon, wrote in a note.

China's economy looks to be springing back in the much-vaunted V-shaped recovery as it eases its coronavirus lockdown after being the first economy to shut down at the outset of the pandemic.

Industrial activity in China managed to successfully bounce back in a 'V-shaped' recovery as production rose 3.9% in April year-on-year, after dropping sharply in the first three months of 2020, according to data released by the country's statistics authority.

A V-shaped recovery is identified by sharp declines in economic measures followed by a sharp rise back to its previous peak, represented by a 'V' on charts. Overall, production levels recuperated back to levels seen in the fourth quarter of 2019.

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Curiously, analysts at Pantheon Macroeconomics warn that other major economies are unlikely to experience similar recovery levels.

This could, in some part, be related to China's lockdown duration which was relatively shorter than in the US or Europe, Freya Beamish, chief Asia economist at Pantheon, wrote in a note dated May 18.

"Most governments won't be able to lean on state-owned enterprises to kick-start activity in the same way," Beamish wrote.

The economy's recovery is also visibly reflected through China's official manufacturing Purchasing Managers Index (PMI) — a measure of economic activity — that bounced to 52 in March from 36 in February.

April's positive data seems to point out that the current momentum behind the recovery is likely to fade further as the room to revival may have slimmed, according to the note.

"The available details of the April report suggest that the momentum behind the upswing in industrial production will fade further, as the space for catch-up has narrowed considerably," Beamish wrote.

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Here's why China's industrial output may slow down in the short-term

China's vehicle production rose in April by an adjusted 37% month-on-month, recovering a substantial amount of the decline in the first quarter.

However, Beamish said "only so much inventory build is justifiable in the current climate, even if external demand roars back in the third quarter."

Sectors in which industrial output shot past its end-2019 level include micro-computers and electronic circuits, but these are prone to a modification in the short-run, according to Pantheon.

Other sectors that rely on household spending declined in April. These broadly include: cloth and smartphone manufacturing, fixed assets investment, and infrastructure.

The 12.3% increase in April retail sales volumes was possibly a consequence of "revenge spending" or pent-up demand to purchase goods. The retail industry underwent a severe decline in the first three months of the year, reflecting uneven consumption levels.

"In all, the job and salary cuts suffered due to China's lockdown will continue to hold back the speed of the consumer recovery this year," Beamish concluded.

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