Three years on

It is three years since a cluster of cases of severe pneumonia started to draw attention in Wuhan. Chart 1 maps economic developments in China since then. The blue bars show cumulative growth since the end of 2019 and the black outlines show growth over the preceding three years. When we looked at these figures a year ago, they suggested that China’s economy was not much smaller than it would have been had the pre-pandemic growth rate continued. But after a brutal year a substantial gap has opened up. The official GDP figures for last quarter are likely to show that the economy is about 7% smaller than it would have been had the previous growth rate continued. Our estimate, based on our China Activity Proxy, puts the gap at 9%. There are huge differences in performance across the economy. Our in-house gauge suggests that industry has grown slightly faster over the three years of the pandemic than it did in the three years before. However, the service sector has retreated, not just relative to its pre-pandemic growth trend, but in absolute terms too.