China’s economy made a comeback in the second quarter, raising hopes for a swift recovery. GDP growth bounced back to 3.2 percent in the second quarter following a contraction of 6.8 percent in the previous quarter. Despite the improvement, the economic impact of the pandemic continues to leave its mark.
After the government’s initially slow response, China’s economic recovery benefited from proactive government policies, which sought to control the outbreak of coronavirus, while limiting the economic fallout. The government was swift to enact policies that sought to alleviate the immediate economic impact of the severe slowdown on companies and employees. A rescue package worth over 4 trillion RMB, that included tax cuts, lower interest rates, reduced utility prices and employment support, provided China’s economy with a necessary lifeline as the shock unfolded.
The recovery also benefited from surprisingly resilient global demand for “Made in China” goods. Although falling demand has left its mark on growth, the versatility of China’s industrial complex proved to be a boon.
The V-shaped recovery is not taking place across the board and is at risk of losing its initial momentum. Most notably, consumption and employment remain suppressed. The possibility of renewed or extended shutdowns, both in China and elsewhere around the globe remains a risk to the economy.