Following the news that floods in China forced several small businesses to shut down and millions to migrate from their homes, Gargi Rao, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view :
China’s GDP growth rate of 3.2% (YoY) in Q2 2020 may not sustain in the next quarter due to the shut down of many companies as a result of floods of Yangtze river (China’s longest waterway) and the resurgence of new COVID-19 cases.
Weeks of flooding has crippled commodity production and displaced around 3.7 million people from their homes in many provinces including Hubei, Anhui and parts of South China. North-west China is the worst hit region. An uptick in PMI manufacturing of 51.1 points was recorded in July 2020, showing factory growth. But the onset of floods in Central and Southwestern China has disrupted the manufacturing and construction sectors, which were indeed the drivers of growth.
The floods of Yangtze river basin, which is the source of China’s rice, has resulted in food shortages given huge demand. According to the Ministry of Emergency Management, 1608.1 thousand hectares of crop area has been affected by floods. On monthly basis, food prices which account for nearly one-third of weighting in China’s CPI, recorded at 2.8% in July 2020.
Export growth still remains sluggish due to the ban of major Chinese businesses in major economies like the US, Japan and India. The floods have resulted in increasing dependence on imports for food-grains. Small enterprises are the worst hit as floods have disrupted transportation and logistics along with equipment, warehousing and inventory.
Even though China is expected to avoid recession in 2020, weak consumption and decline in retail growth remain fragile spots for the country. Rising food prices, supply chain disruptions due to reduction in production, marginal rise in unemployment rates, and soaring demand for food grains added to the short-term economic shocks caused by floods.
However, the overall impact of floods on economic indicators is short-lived. As many small businesses are shut, industrial production has come to standstill. Due to loss in business confidence, decline in investments is larger as compared to industrial output and consumption. The easing of lockdown restrictions, timely government measures clubbed with automatic adjustment in demand and supply would put Chinese economy on recovery path, but the rate of growth is expected to slowdown in third quarter due to the havoc caused by floods.