China suffers first GDP decline on record as coronavirus cripples economy

A member of a medical team weeps at the Wuhan Tianhe International Airport after travel restrictions to leave Wuhan, the capital of Hubei province and China's epicentre of the novel coronavirus disease (COVID-19) outbreak, were lifted. Photo: Reuters

China suffered its worst economic contraction in the first quarter of 2020 as the coronavirus outbreak paralysed production and spending, whichmakes recovery harder than initially expected. This is the first recorded decline in China's GDP data since it started publishing in 1992. According to AP, this was China's worst performance since before market-style economic reforms started in 1979.

The world's second-largest economy shrank 6.8% from a year ago in the three months ending in March after factories, shops and travel were closed to contain the infection, official data showed Friday.

While China has managed to get large parts of its economy up and running from a standstill in February, analysts say policymakers face an uphill battle to revive growth as the coronavirus pandemic ravages global demand.

Some forecasters earlier said China, which led the way into a global shutdown to fight the virus, might rebound as early as this month. But they have been cutting growth forecasts and pushing back recovery timelines as negative trade, retail sales and other data pile up.

Retail spending, which supplied 80% of China's economic growth last year, plunged 19% in the first quarter from a year earlier, below most forecasts. Investment in factories and other fixed assets, the other major growth driver, sank 16.1%.

On a quarter-on-quarter basis, GDP fell 9.8% in the first three months of the year, the National Bureau of Statistics said, just off expectations for a 9.9% contraction, and compared with 1.5% growth in the previous quarter.

Separate data showed China's industrial output falling by a less-than-expected 1.1% in March from a year earlier. Retail sales fell 15.8% in the same period. Fixed asset investment shrank 16.1% in January-March.

China's urban jobless rate was at 5.9% in March, down from 6.2% in February.

Auto sales sank 48.4% from a year earlier in March. That was better than February's record 81.7% plunge but is on top of a 2-year-old decline that already was squeezing global and Chinese automakers in the industry's biggest global market.

Exports declined 6.6% in March from a year ago. That was an improvement over the double-digit plunge in January and February, but forecasters warn exporters likely face another downturn as the fight against the virus depresses US and European consumer demand.

Forecasters including Oxford Economics, UBS and Nomura say China will have little to no economic growth this year.

Nomura expects Beijing to deliver a stimulus package in the near-term, which could be financed by the central bank through various channels.

"However, unlike previous easing cycles, when most of the new credit went to finance spending on infrastructure, property and consumer durable goods, this time we expect most of the new credit to be used on financial relief to help enterprises, banks and households survive the Covid-19 crisis," they said in a note.

The pandemic has infected more than 2 million globally and killed more than 145,000. China, where the virus first emerged, has reported more than 3,000 deaths although new infections have dropped significantly from their peak.

Analysts expect nearly 30 million job losses this year due to stuttering work resumptions and plunging global demand, outpacing the 20-plus million layoffs during the 2008-09 financial crisis.

Beijing has pledged to take more steps to combat the impact of the pandemic, as mounting job losses threaten social stability.

The central bank has already loosened monetary policy to help free up the flow of credit to the economy, but its easing so far has been more measured than during the global financial crisis

The government will also lean on fiscal stimulus to spur infrastructure investment and consumption, which could push the 2020 budget deficit to a record high.

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