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Does the China COVID recovery point to a V-shaped US recovery?

With the COVID-19 shutdown profoundly impacting the US economy with over 30 million job losses, just one in 10 fund managers expect a V-shaped recovery according to the FT. Is this the right call? Luckily we can look to the Far East as a crystal ball and what we may have in store in the next few months.

China re-opened their economy in mid-February so they are about 3-5 months ahead of the US economy as the US is opening states at differing schedules.

What does it suggest about a V-shaped recovery? Some sectors have rebounded in a strong V, while others have been slow to recover. Let's take a closer look.

It's a V

The manufacturing and industrial part of the Chinese economy has seen a remarkable recovery. For China, they still have a significant part (roughly 40%) of their economy in manufacturing so this bodes well for their economy.

Coal consumption is now 23% above 2019 levels from May! 

City traffic congestion is also back to 2019 levels. This may partially be from more people driving as subway ridership is 28% lower than 2019. 

Here you can see the trend in work resumption as it is close to normal levels.

From the previous charts, much of the Chinese economy has rebounded sharply in a V-shaped recovery, but the short-term risk is that global demand has been hurt which will also hurt Chinese exports.

Let's take a look at some of the data that points to a slower recovery.

Slow recovery ahead

Here you can see the lagging sectors are transportation, hotel/catering, real estate, and sports/culture/entertainment.

Hotel and catering is still hurting, down 26% year over year. Tourism will surely be slow to recover.

Movie theaters and sporting leagues still haven't re-started in China. That part of the economy is running at just 14% of last year's levels.

Restaurants are also still profoundly impacted. While most restaurants have re-opened, the billings are still down 39% year-over-year. This is a scary thought for restaurant owners and points to an extremely challenging period ahead.

The road ahead

Both the Chinese and US economies are helped by significant fiscal and monetary stimulus. This should speed up the recovery in both nations.

If we follow the path of China, we should expect our manufacturing companies to rebound faster but that is a much smaller part of our economy at just 10%. In the US, we are far more reliant on a service sector rebound.

With the unemployment rate expected to peak above 25%, Goldman Sachs forecasts above 20% at the end of the third quarter and 12% unemployment by the end of the year. This would be a pretty quick rebound in employment but year end unemployment would still be higher than the peak of the financial crisis.

Therefore the recovery in the US is likely going to be much more uneven. Hotels, travel and restaurants will be slower to recover; but the tech sector is already looking extremely resilient. There will definitely be winners and losers coming out of the pandemic. Invest wisely.

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About the Author: Chris Wang

Chris Wang


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