Hobbled by coronavirus, China's first-quarter GDP
shrinks for first time on record
Send a link to a friend
[April 17, 2020] By
Gabriel Crossley and Kevin Yao
BEIJING (Reuters) - China's economy
contracted for the first time on record in the first quarter as the
coronavirus shut down factories and shopping malls and put millions out
of work.
Gross domestic product (GDP) fell 6.8% in January-March year-on-year,
official data showed on Friday, a slightly larger decline than the 6.5%
forecast by analysts and reversing a 6% expansion in the fourth quarter
of 2019.
It was the first contraction in the world's second-largest economy since
at least 1992, when official quarterly GDP records were first published.
Providing a silver lining was a much smaller-than-expected fall in
factory production in March, suggesting tax and credit relief for
virus-hit firms was helping restart parts of the economy shut down since
February.
However, analysts say Beijing faces an uphill battle to revive growth
and stop massive job losses as the global spread of the virus devastates
demand from major trading partners and as local consumption slumps.
"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% 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.
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 the rest of the world
falls into recession.
Per capita disposable income, after adjusting for inflation, fell 3.9%
from a year earlier in the first quarter, the data showed.
"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% in March from a year
earlier. Highlighting the challenges in consumption, however, was a
15.8% fall in retail sales, which was larger than expected. Fixed asset
investment dropped 16.1% in January-March from a year earlier.
Investors and policymakers worldwide are closely watching to see how
long it takes China to recover from the virus shock, as the United
States and a number of other afflicted countries begin to consider
cautious reopenings of their economies.
[to top of second column] |
A street cleaner walks by Beijing's Central Business District during
morning rush hour as the spread of the new coronavirus disease
(COVID-19) continues in China, April 17, 2020, REUTERS/Thomas Peter
"As long as there are strict social distancing measures, the recovery of
activity will be very slow, and this will be reflected in consumption," analysts
at ING said in a note.
PANDEMIC IMPACT
Economists' forecasts for first-quarter GDP had ranged widely given the many
uncertainties around the pandemic's economic and social impact in China.
The virus has infected more than 2 million globally and killed more than
140,000. China, where the virus first emerged, has reported more than 3,000
deaths although new infections have dropped significantly from their peak.
Of major concern for policymakers is social stability among its 1.4 billion
citizens, millions of whom migrate from rural areas to cities to find work each
year.
The urban jobless rate fell to 5.9% in March from 6.2% in February, suggesting
the pain in the labour market is yet to be reflected in official numbers.
However, analysts warn of nearly 30 million job losses this year due to
stuttering work resumptions and plunging global demand, outpacing the more than
20 million layoffs seen during the 2008-09 financial crisis.
RESCUE PACKAGE
China's stability-obsessed leaders have pledged more steps to combat the slump
but are mindful of the lessons learned in 2008-09 when massive stimulus saddled
the economy with mountains of debt.
Last month, the ruling Communist Party's Politburo said it was considering
measures such as more local government special bonds and special treasury bonds.
"We expect Beijing to deliver a large stimulus package soon to combat the worst
recession in decades, with most of the financing to be provided by the PBOC
(People's Bank of China)," Ting Lu, chief China economist at Nomura, said in a
note.
The PBOC has already loosened monetary policy to help free up credit to the
economy, but its easing so far has been less aggressive than during the
financial crisis.
China has cut a number of key policy rates in recent months and is widely
expected to lower its benchmark lending rate again on Monday at its monthly
fixing. Regulators have also encouraged banks to offer cheap loans to the
hardest-hit sectors and tolerate late loan repayments.
The government will also lean on more fiscal stimulus to spur infrastructure
investment and consumption, which could push the 2020 budget deficit to a record
high.
For 2020, China's economic growth is expected to tumble to 2.5%, its slowest
annual pace in nearly half a century, a Reuters poll showed this week.
(Reporting by Lusha Zhang, Kevin Yao and Gabriel Crossley; Editing by Sam
Holmes)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |