China Suffers Historic Economic Slump With Hard Recovery Ahead

Date: 2020-04-17 11:16:30

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The coronavirus pushed China’s economy into its first contraction in decades in the first quarter, with the spread of the disease around the world now leaving the nation reliant on fragile domestic demand to spur a recovery.

Gross domestic product shrank 6.8% from a year ago, the worst performance since at least 1992 when official releases of quarterly GDP started and missing the median forecast of a 6% drop. China’s economy hasn’t contracted on a full-year basis since the end of the Mao era in the 1970s.

Retail sales slid 15.8% in March as consumers remained wary, while investment decreased 16.1% in the first three months of the year. A brighter sign was the smaller-than-expected contraction in March industrial production of 1.1% as factories returned to work amid easing lockdowns.

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Both retailing and factory output showed improvement from the nadir in the first two months, suggesting a stabilization in economic activity.

“We expect this recovery to continue,” said Louis Kuijs, head of Asia economics at Oxford Economics Hong Kong Ltd. “However, the upturn will be slowed down by lingering consumption weakness and sliding foreign demand.”

China’s markets held on to gains after the release and ended slightly higher as investors had already anticipated the weak data. The Shanghai Composite Index was up 0.66% at 3 p.m., while the Hang Seng Index climbed 1.56% in Hong Kong.

The economy was forced into a paralysis in late January as the epidemic that first started in Wuhan spread across the country. The economy remained shuttered for much of February with factories and shops closed and workers stranded at home. The process of resuming business has been slow and the return rate only inched up to around 90% at the end of March, Bloomberg Economics estimates.