China’s economy shrank in the March quarter for the first time since current records began almost three decades ago, as the coronavirus shut down factories and shopping malls and put millions out of work.
Gross domestic product (GDP) fell 6.8 percent in January-March year-on-year, official data showed on Friday, a slightly larger decline than the 6.5 percent forecast by analysts and reversing a 6 percent 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 started.
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 percent in the first three months of the year, the National Bureau of Statistics said, just off expectations for a 9.9 percent contraction, and compared with 1.5 percent 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 percent 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 percent in March from a year earlier. Highlighting the challenges in consumption, however, was a 15.8 percent fall in retail sales, which was larger than expected.
For 2020, China’s economic growth is expected to stumble to 2.5 percent, its slowest annual pace in nearly half a century, a Reuters poll showed this week.