China’s economy shrank for the first time in decades in the first quarter, as the coronavirus outbreak brought production and spending to a standstill.
Official data shows the world’s second largest economy suffered a sharp downturn of 6.8% between January and March, when factories, shops and travel were shut down in a bid to contain the COVID-19 infection.
Although slightly larger than the decline forecast by analysts it was broadly in line with expectations and markets were up in Asia, which seemed more focused on Donald Trump’s plan to reopen the US economy in the face of the coronavirus crisis.
China, where the outbreak originated, declared victory over the virus in early March and started reopening factories and offices even as other countries tightened controls.
But analysts say Beijing faces an uphill battle to revive growth as the global pandemic devastates demand from major trading partners and dampens domestic consumption.
Lu Zhengwei, Shanghai-based chief economist at Industrial Bank, said the latest Gross Domestic Product (GDP) data reflected “the toll from the economic standstill when the whole society was on lockdown”.
He added: “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.”
“I don’t think we will see a real recovery until the fourth quarter or the end of the year,” added economist Zhu Zhenxin at the Rushi Finance Institute in Beijing.
Retail spending, which supplied 80% of China’s economic growth last year, plummeted by 19% in the first quarter from a year earlier, below most forecasts.
This has been slow to recover despite government moves to encourage spending by giving out shopping vouchers in some cities and launching a media campaign showing officials eating in restaurants.
Many householders are holding onto their cash because of the fear of possible job losses, while others remain reluctant to go shopping as health concerns persist.
The Beijing regime has urged companies to keep paying employees and avoid redundancies, but a wave of bankruptcies has flooded the job market, fuelling economic jitters.
Data also shows exports fell by 6.6% in March from a year ago. Forecasters are warning exporters likely face another downturn as the pandemic sees much of the rest of the world slip into recession.
Forecasters including Oxford Economics, UBS and Nomura say China will have little to no economic growth this year.
It comes as it emerged that the number of deaths in Wuhan, the Chinese city which was the initial epicentre of the outbreak, had been revised up by 1,290 – a 50% increase.
Beijing has strongly denied claims it delayed reporting on the virus outbreak in Wuhan late last year and under-reported case numbers, worsening the impact on the US and other countries.
More than two million cases of the disease have now been reported across the world and dozens of countries are in lockdown.
More than 137,000 people have died globally, according to a tally by Johns Hopkins University, which is tracking the outbreak.