summary
  • Has China Been Cured?
  • Auto Sector Skids
  • Mexico’s Fiscal Past Clouds Its Future

The coronavirus has exacted a significant toll on economic activity around the world. Many indicators appear to have fallen off a cliff, as stay-at-home guidance depresses commerce. We may not see a bottoming in the data for several months.

Fortunately, growth in coronavirus cases has slowed in many places, allowing the contemplation of reopening. From the country of Germany to the U.S. state of Georgia, public health officials have granted additional freedom of movement, albeit with some lingering restrictions. The outcomes of these experiments will serve as useful guides for other jurisdictions seeking to restore economic activity.

Interestingly, few are paying much attention to the lessons offered by China’s experience. China was the first country to confront the coronavirus, and the first to reopen after the contagion had been arrested. The country claims to be almost fully recovered, but doubts surround China’s medical and economic accounting. In the aftermath of the pandemic, China may never get back to business as usual.

The origins of the coronavirus are the subject of some controversy. Western scientists think it originated late last year, in a market in southeastern China. Some governments are now pressing the Chinese for explanations and reparations.

After initially suppressing information about the outbreak, China moved with speed and force to limit the spread of the virus. Wuhan, a city of 11 million, was locked down; strict limitations on movement were enforced elsewhere in the country. These measures, however draconian, apparently arrested contagion.

Weekly Economic Commentary - 05/01/20 - Chart 1

According to Chinese accounts, new cases have fallen to only a handful each day. Although China’s population is more than four times larger than the U.S., only 4,600 Chinese are reported to have died from the disease, less than one-tenth the toll in the United States.

“There are questions surrounding China’s medical and economic information.”

External observers have expressed doubts about China’s patient counts. During the height of the infection in Wuhan, case reports fluctuated wildly, as different definitions were used to categorize the sick. To be fair, proper accounting for the coronavirus has been challenged by asymptomatic carriers and limited testing. But China’s official tally has remained muted, despite reports of new outbreaks in various parts of the country. Western analysts sense a systematic undercount, born of a desire to suppress information about the outbreak. This renders Chinese data useless for scientists trying to model the course of the pandemic, a critical tool for guiding public health policy.

As part of the quarantine efforts, China suspended production at many of the nation’s factories, extending the holiday period following the Lunar New Year. After a decline during the month of February, a key measure of economic activity (the Purchasing Managers Index, or PMI) rebounded quickly to its pre-COVID-19 level. Sudden recoveries from such depressed levels have never been seen in other countries; interestingly, the Chinese version is calculated by its government, whereas PMIs elsewhere are assembled by an international research firm.

China did record a substantial drop in gross domestic product (GDP) during the first quarter. Chinese officials have asserted that a full recovery will soon be at hand. But measures covering traffic, power usage and other quantities illustrate a more gradual process of returning to work. Safety is certainly one reason, but another might be the deeply damaged demand for Chinese output. China’s consumers have been through a challenging interval, and with Western countries falling into a deep recession, export demand could be limited.

Weekly Economic Commentary - 05/01/20 - Chart 2

China’s government has implemented a broad range of supports to help the economy. China has passed out spending vouchers to many of its citizens and has enhanced the support available for the unemployed. (These steps are comparable to those taken in other countries.) It has also initiated new infrastructure programs. The People’s Bank of China has lowered rates and taken steps to promote additional lending in the economy.