Coronavirus Drags China’s Economy Into First Slump In Four Decades

TOPLINE

China, the world’s second largest economy, said on Friday that its economy shrank 6.8% in the first quarter compared with 2019, marking its first contraction since 1992 as a result of the coronavirus and draconian measures meant to limit its spread.

KEY FACTS

Coronavirus, first reported in the city of Wuhan late last year, eventually forced China’s communist government to push for a virtual nationwide shutdown of business and transport.

But analysts are unlikely to read the figures at face value following long-running controversy over the accuracy of China’s economic indicators, and Beijing’s sensitivity over its handling of the first stages of the pandemic.

Reuters polled 57 analysts earlier this week who forecast a huge range of outcomes from a 28.9% GDP contraction, to a 4% expansion.

The latest figures compare to GDP growth of 6.1% in 2019, which continued a trend of China facing its slowest economic growth in 30 years.

China’s 2020 growth is now expected to fall to 2.5%, according to a Reuters poll of analysts. But a spokesman for China’s National Bureau Of Statistics optimistically claimed growth could top 5%, according to CNBC’s translation of his press conference.

Industrial output also fell, by 8.4% in the first quarter, while retail sales fell 19%. Online sales were up almost 6%.

Fixed asset investment—spent on buildings, machines and other key infrastructure, fell around 16%.

Additional info: Urban unemployment was 5.9% in March, compared with 6.2% in February, Reuters reported, however analysts say some 30 million people could lose their jobs this year as global demand drops. China’s unemployment numbers have also been viewed with some skepticism by investors.

Key background: China’s decades-long march to become the world’s largest economy hit a major speed bump in January and February when its communist rulers ordered a de facto national shutdown to limit the spread of the coronavirus. Officially China’s GDP has grown uninterrupted since quarterly records began in 1992, and the last time Beijing acknowledged a major drop in production was after the Cultural Revolution in 1976.

Investors have long questioned the accuracy of China’s official indicators and now face a new challenge in trying to estimate the true impact of the coronavirus, and the shutdown. China’s economy was already under pressure with growth slowing to 6.1% in 2019, the lowest level in 30 years. Now businesses reopening in China face a new challenge with swathes of the rest of the world still under effective lockdown, and enduring what economists warn could be the worst recessions in a century.

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