Understand how China’s GDP grew 18% in the first quarter – 4/16/2021 – Market

Despite the pandemic, the Chinese economy grew 18.3% in the first quarter of this year compared to the same period in 2020, according to data released on Thursday (15).

It was the biggest expansion of the Chinese GDP (Gross Domestic Product) since at least 1992, when the country started to make quarterly measurements. Economists polled by Reuters had expected a 19% rise.

See below what explains the record variation and why a similar phenomenon may occur with Brazil’s GDP data for the second quarter:

The comparison is with the pandemic rock bottom

Several countries are going to record record growth a year after the spread of Covid-19 in their territory because at the beginning of the health crisis their economies plunged to the bottom. Thus, the basis for comparison with what was, not infrequently, the worst moment in GDP leads to a record change 12 months later, in a scenario of greater stability.

In the Chinese case, the country reported an unprecedented expansion of 18.3% in the first quarter of this year compared to the same period in 2020, when the country’s economy suffered the biggest blow by Covid-19. At that time, Chinese GDP shrank 6.8% compared to the first quarter of 2019.

In relation to the fourth quarter of last year, when China was already experiencing a recovery scenario, the growth observed at the beginning of 2021 was much lower – only 0.6%.

In Brazil, rock bottom was reached in the second quarter of 2020, when GDP fell 10.9% compared to the same period in 2019.

Due to the low basis of comparison, the economists consulted by the Central Bank in the Focus survey estimate that Brazil’s GDP will grow 9.5% in the April-June period compared to the same months last year – in the first quarter, it should fall 0, 6%.

Other results, however, will show an economy still in recession. The expectation is that the GDP should remain at the level it is or even contract in the first two quarters of 2021, when considering the comparison with the immediately previous quarter.

Government bailed out companies and maintained strict restrictive measures

This year, China maintained strict measures to restrict circulation and control the disease. At the same time, the government has not given up aid measures to companies and consumers and is continuing with a major infrastructure program.

Chinese industry grew by 24.5% in the period. The services sector, 15.6%, although some segments, such as air transport, have not yet recovered fully.

In Brazil, although the country has implemented one of the largest fiscal packages to respond to the pandemic in the world, the out-of-control health crisis continues to harm the economy.

Report from leaf showed that the 20 nations that had the best economic results are also the most successful in the health sector – among them, China. The Asian country stands out for its massive testing and mapping of contagious contacts.

Of 65 countries analyzed, Brazil was worse than this group on both fronts. Unlike the Chinese and other nations, there is no centralized strategy here in the federal government. The country also took a long time to act to acquire vaccines, while betting on treatments without proven efficacy.

Exports soared

Exports also continue to drive Chinese growth, in a scenario where there is a lack of products to supply the world industry, mainly in the area of ​​technology.

The growth of exports is taking place at a time when other large economies are still in difficulty, which allows the Asian country to assume a more dominant role in world trade.

In the first two months of the year, sales of Chinese products abroad had a record growth of 60%, with great demand for health products and electronic equipment, two segments driven by the pandemic and also by stimulating consumption worldwide.

The Chinese recovery has helped Brazil, by contributing to raise the prices of basic products exported by the country and also sales in volume. On the other hand, this demand helped to put pressure on Brazilian inflation.

Difficulties in some sectors and normalization of the economy

According to Swiss bank Julius Baer, ​​growth in the first quarter was supported by a solid industrial sector, which benefited from strong export growth and a gradual resumption of activity in the services sector.

In the quarterly comparison, however, there was a slowdown, with reduced stimuli and a new outbreak of Covid-19 in parts of China in early 2021, which hampered the recovery of the services and tourism sectors.

According to the institution, the expectation is for a gradual normalization of macroeconomic policy this year, including fiscal consolidation, credit deceleration and efforts to stabilize the debt and the real estate market. Interest rates are not expected to rise this year, a perspective shared by the IMF and other analysts.

In Brazil, services are also on the recovery ladder, having returned to the pre-crisis level only in February of this year, but with the prospect of a new fall in March and April, in a “concertina effect” that frustrates companies’ planning for the resumption.

What will happen now

After growing 2.3% in 2020, being one of the few countries that registered GDP expansion in the year of the pandemic, China is expected to grow at least 6% this year, according to government projection – the market estimate is close to 9% .

There are fears about what may happen in the face of factors such as a slowdown in exports, overheating of the real estate market and companies that have gone into debt with the stimulus programs.

The country also has a vaccination campaign that is still slow and people are afraid to resume consumption habits that require social contact and agglomerations.

127.5 doses were applied per thousand inhabitants, a total of 183 million vaccines. In Brazil there are 154 per thousand and a total of 32.8 million, most of them made with Chinese inputs.

In China, there is strong adherence to voluntary detachment and the government itself has increased restrictions to avoid travel and family reunions during Lunar New Year, the biggest holiday of the year in China.

The IMF (International Monetary Fund) estimate is for growth of 8.4% for China this year, above the world average of 6%, while Brazil should have expansion of 3.7%.

According to the Fund, considerable differentiation is expected between China, where effective measures to contain the virus, a vigorous public investment response and central bank liquidity support have facilitated a strong recovery, and other emerging countries.

Speaking in March, the leader of the Chinese Communist Party, Xi Jinping, said the country is entering a period of opportunity in which “the East is on the rise and the West is on the decline”.

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