China’s economy shrinks for first time in decades on coronavirus hit
China’s economy shrank for the first time in nearly three decades of records in the first quarter as the coronavirus pandemic hit spending and production.
Gross domestic product (GDP) fell 6.8 per cent in the quarter ended March compared to the same period the previous year, official data showed today, slightly larger than the 6.5 per cent decline forecast by analysts and reversing a six per cent expansion in the fourth quarter of last year.
The contraction is the first in China since at least 1992 when official quarterly GDP records started.
One positive was a much smaller-than-expected decline in factory production in March, suggesting efforts to restart parts of the economy since February are working.
However, analysts say Beijing faces an uphill battle to revive growth as the global spread of coronavirus hits demand from major trading partners, while domestic consumption also remains under pressure.
“First-quarter GDP data is still largely within expectations, reflecting the toll from the economic standstill when the whole society was on lockdown,” said Lu Zhengwei, Shanghai-based chief economist at Industrial Bank.
“Over the next phase, the lack of overall demand is of concern. Domestic demand has not fully recovered as consumption related to social gatherings is still banned while external demand is likely to be hammered as pandemic spreads.”
On a quarter-on-quarter basis, GDP fell 9.8 per cent in the first three months of the year, the National Bureau of Statistics said, just off expectations for a 9.9 per cent contraction, and compared with 1.5 per cent growth in the previous quarter.
Financial markets did not react significantly to the contraction, which was broadly in line with consensus expectations.
Statistics bureau spokesman Mao Shengyong told a press briefing after the data that China’s economic performance in the second quarter is expected to be much better than in the first.
However, weaker domestic consumption, which has been the biggest growth driver, remains a concern, as incomes slow and much of the rest of the world falls into recession.
“We are hesitant to think that this is just a one quarter event, Q2 will also likely be lower than expectation,” said Ben Luk, senior multi asset strategist at State Street Global Markets in Hong Kong.
“To offset weakness in external demand, we will see some policy support later this month or early May.”
Industrial output fell by a less-than-expected 1.1 per cent in March from a year earlier. Highlighting the challenges in consumption, however, was a 15.8 per cent fall in retail sales, which was larger than expected.
Binay Chandgothia of Principal Global Investors said: “With China ending the majority of its covid-19 related restrictions in the latter part of the first quarter, we expect a bounce in Chinese growth in the second quarter.
“This will be driven primarily by internal consumption and investment as the positive effects of easing monetary policy (rate cuts by the People’s Bank of China and a significant rise in Total Social Financing) and fiscal support bear fruit.
“While foreign trade beat expectations in the first quarter, we expect it to face headwinds in at least the early part of the second quarter due to the lockdowns imposed by key trading partners like Europe, US, India and several other parts of Asia.”