Coronavirus pushed China's economy into its first contraction in decades in the first quarter, as weak consumer spending and production point to a long, hard recovery.
The world's second-largest economy shrank 6.8 per cent from a year ago in the three months ending in March after factories, shops and travel were closed to contain the infection, official data showed Friday.
That is the worst performance since at least 1992 when official releases of quarterly GDP started and misses the median forecast of a 6 per cent 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 per cent in March as consumers remained wary, while investment decreased 16.1 per cent in the first three months of the year. A brighter sign was the smaller-than-expected contraction in March industrial production of 1.1 per cent as factories returned to work amid easing lockdowns.
Both retailing and factory output showed improvement from their lowest points in the first two months, suggesting a stabilisation in economic activity.
"We expect this recovery to continue," said Louis Kuijs, head of Asia economics at Oxford Economics Hong Kong. "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 as investors had already anticipated the weak data. The Shanghai Composite Index was up 0.9 per cent at 12:30pm (8:30am UAE time), while the Hang Seng index climbed 2.3 per cent 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.
To cushion the economic blow, China has unveiled a range of support measures and has increased fiscal and monetary support – although not on the scale of other nations.
While exports fell less than expected in March as production capacity was gradually restored, economists warn headwinds lie ahead as the rest of the world shuts down and external demand diminishes.
"Most major economies are still in the lockdown stage," Robin Xing, chief China economist at Morgan Stanley Asia, said on Bloomberg TV. "As a result, growth in the second quarter will be shallow, just marginally above zero."
On the positive side, the surveyed jobless rate actually declined in March, to 5.9 per cent from February's record 6.2 per cent. That suggests China is so far avoiding the kind of job destruction seen in the US, where more than 5 million Americans filed for unemployment benefits last week, bringing the total in the month since the coronavirus pandemic throttled the US economy to 22 million people.
Much depends now on whether consumers regain a willingness to spend amid nervousness that the virus can stage a comeback as controls are relaxed.
Consumer caution "continues to restrain demand, and thus activity more broadly," said Frederic Neumann, co-head of Asia economic research at HSBC in Hong Kong. "This is reminder also for other economies of the arduous path to full recovery even after full lockdowns are removed. All this points to the need for a more determined policy push on both the monetary and fiscal fronts to 'shock the system' and get activity back up to its earlier vitality."