China's success in containing the coronavirus that erupted in Wuhan toward the end of 2019 sets the stage for a rapid rebound in production, but flagging demand from countries struggling to replicate that feat could prove to be a fly in the ointment, analysts say.
"The situation on the ground in China appears to be gradually normalizing but it's still well below normal," said Anwiti Bahuguna, head of multiasset solutions with Boston-based Columbia Threadneedle Investments.
Meanwhile, with the "rolling global impact of the coronavirus" depressing growth in Europe and the U.S. now, "a sharp decline in export demand from the rest of the world" will likely weigh on China and Asia more broadly for some time, she said.
Noted Aidan Yao, Hong Kong-based senior emerging Asia economist at AXA Investment Managers: "We think China could be fully back to work by end-March or early April, setting the stage ... for a growth rebound" in the second quarter.
But with China's domestic epidemic now a global pandemic, "the risk now is that this recovery could be compromised by the rapidly deteriorating global backdrop," he said.
Business resumption rates on the mainland range from roughly 60% for small to midsize enterprises to almost 100% for large state-owned enterprises, "and the pace of normalization is accelerating as the number of local infections has fallen to zero," Mr. Yao said.
But just because a business has resumed doesn't mean it's operating at full capacity.
Supply-side constraints (strict administrative controls, labor shortages, logistic disruptions, etc.) should continue to diminish — potentially becoming a non-issue early in the second quarter, Mr. Yao added.
Without greater policy support, demand may not be strong enough to power a V-shaped recovery, he said.
"The bottom line is that the supply shock should broadly fade away by early Q2, meaning that the economy can produce in line with prevailing demand," Mr. Yao said.
"However," he said, "by our current estimate, the economy won't be back to trend growth of 6% until Q3."
