Jinyoue Dong & Betty Huang (BBVA Research) | Vaccination, accommodative monetary policy with “no sharp turnaround”, possible alleviation of China-US tension under Biden’s presidency and deflationary environment give Chinese authorities a chance for a short respite in 2021.
Q4 2020 GDP growth achieved 6.5%, higher than the pre-pandemic growth rate. However, to regain all the lost ground in every perspective of economy, quite a bit of perseverance is still needed.
The uneven recovery feature that the supply side lags behind the demand side has been mitigating. However, although industrial production already goes back to pre-Covid growth, demand side retail sales and FAI, albeit improving significantly, still far from that.
Amid escalating US-China tensions in almost every fronts, EU-China Comprehensive Agreement on Investment which was signed at end-2020 became the game-changer of international relations.
Monetary policy, normalization is the main stance in 2021. But there will be “no harsh turnaround” indicated by the December Annual Central Economic Conference. That means, a neutral but still accommodative monetary policy, together with a tightening financial regulation will be the main stance in 2021.
Based on low statistical base effect, we forecast 2021 GDP growth to bounce back to 7.5%. But that is the easy part, the base effect will flatter the growth outturn of 2021 everywhere in the world.