Will the current epidemic in the country that consumes half of the world’s raw materials push down (6%) its growth in 2020?
This is what S&P Global Ratings says and this is the question most investors have been asking themselves in recent days.
Looking at the indications of the Bloomberg World Mining index the answer seems seemingly obvious, with the index having fallen more than almost six months, reducing China’s voracious appetite for commodities.
The shares of the world’s major mining groups have also declined:
– RIO TINTO down 6% since Monday
– FORTHESCUE METALS GROUP down 9%.
So it’s a very delicate situation. But how much life can these viruses have? Usually within a few months the outbreak tends to be suppressed.
In the meantime, will Beijing remain helpless?
Let’s take a step back. In 2003 SARS epidemic and 2008 financial crisis. How did China act? It has increased an important component of GDP, fixed investments (especially those of state-owned companies), to fuel new industrial activities and revitalize the Asian economy.
China Fixed Asset Investment Y/Y
So it is not impossible that the epidemic could start to calm down in April, just as the Chinese industrial machine is recovering from its normal winter sleep. The cold weather and the long lunar New Year typically bring industrial activity to very low levels in January and February, before resuming at full speed between March and June.
Are we therefore confident that China’s GDP can contract by 1.2%, thus violating Xi Jinping’s long-term commitment to double the country’s growth?
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