World Economy

China is seeing a 'V-shaped recovery,' but don't expect that to be the global norm, analyst warns

Key Points
  • IMA Asia's Richard Martin warns that many economies around the world are unlikely to see a strong economic bounceback like what is being seen in China at the moment.
  • Martin said recent Purchasing Manager's Index figures point to a so-called "V-shaped" recovery for the Chinese economy.
  • China's official manufacturing Purchasing Manager's Index as well as a private survey, released recently, both showed manufacturing activity in the country expanding in May.
Workers assemble air conditioners at a Midea plant in Wuhan in central China's Hubei province Thursday, March 26, 2020.
Feature China | Barcroft Media via Getty Images

China is seeing a strong economic rebound following a slump spurred by the lockdown to curb the coronavirus' spread, but don't count on that being the case for other major economies around the world, says IMA Asia's Richard Martin.

"That's a V-shaped recovery you see in the (Purchasing Manager's Index), down sharply in February, back up in March, still strong in April, back up a little above 50 in May," Martin, who is managing director at the firm, told CNBC's "Street Signs" on Monday.

Martin's comments came after recent data showed China's manufacturing sector expanding in May.

Over the weekend, China's official manufacturing PMI for May came in at 50.6, according to the country's National Bureau of Statistics. A private survey released Monday also showed manufacturing activity in China unexpectedly expanding in May, with the Caixin/Markit manufacturing PMI coming in at 50.7 for that month. PMI readings above 50 signify expansion, while figures below the level represent contraction.

Among other markets in Asia, Martin said Vietnam and Taiwan could pull off a similar economic recovery.

Elsewhere, however, he warned that everyone "goes down and stays down for two or three months before they come back up."

"That will be the story we see in Europe and the United States, and people still haven't adjusted to that," Martin said. "They think once Covid-19 dies down, that's the end of the game. But it's not."

Market performance has diverged from the bleak economic data in recent weeks. Stateside, the three major indexes saw strong gains in May, with the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite surging more than 4% each for the month. In Asia, Japan's Nikkei 225 soared more than 8% in May. The pan-European Stoxx 600 also gained about 3% for the month.

Still, Martin warned: "This is not a market for strong recovery."

The Covid-19 wave, the first wave dies down, but we now have two or three economic waves: Unemployment, bankruptcy, default, which are gonna build through the end of the year.
Richard Martin
Managing Director, IMA Asia

"We've got a lot of damage that's been done so the sort of indicators you want to look for, look for the unemployment numbers. We're talking double digit in the United States and Europe and advanced countries like Australia at the end of this year," he said.

At present, Martin said the world is currently undergoing a "transition" toward a "new normal." 

"We will see cities, we will see states and provinces and even national governments switch lockdown on and off as they get worried about second waves of virus infection," Martin said. "We'll also see a lot of deflation. Not enough demand for goods and massive restructuring in some core industries."

Citing his discussions with large multinational companies, he said the firms have talked about the third quarter being a period where they will "start rationalizing their operations and letting staff go."

"The Covid-19 wave, the first wave dies down, but we now have two or three economic waves: Unemployment, bankruptcy, default, which are gonna build through the end of the year," Martin said.