China's industrial data set to show contraction

BEIJING • Data on China's industrial output, investment and retail sales due today are forecast to show an across-the-board contraction for the first time on record, evidence of the extent to which the coronavirus has ravaged the economy.

The data is released on a combined basis to account for the normal seasonal swings around the Chinese New Year holiday.

"Most likely, January to February is the lowest point for this year and the growth momentum is clearly improving in March", but the current consensus of 4 per cent gross domestic product growth in the first quarter will be under pressure after the data, Macquarie Group's chief China economist Larry Hu said last Friday.

"The bad news is the recovery has been slower than expected, while the good news is that it's still recovering."

The central bank acted last Friday to soften the blow, providing banks more money to lend by cutting the amount of cash they must place in reserve at the People's Bank of China. That cut takes effect today.

Industrial output, a rough proxy for economic growth, is forecast to have shrunk 3 per cent from a year earlier in the first two months of this year, according to a Bloomberg survey. That is down from a 5.7 per cent expansion last year and would be the first time it has contracted, in data dating back to 1998.

Manufacturers and the rest of the economy were mostly working in the first three weeks of the year. But even in January, the sector was not looking especially healthy, with the official gauge that tracks sentiment among purchasing managers at industrial firms at 50 for the month, right on the dividing line between expansion and contraction.

That dropped to 35.7 last month, showing the effects of the longer-than-usual Chinese New Year holiday and the delayed return to work. China's economy was likely only running at 60 to 70 per cent of its normal level at the end of last month, Bloomberg Economics estimated.

Fixed-asset investment outside rural households, a closely watched indicator of construction activity, likely dropped by 2 per cent in January and last month, the survey showed, in sharp contrast to the 5.4 per cent rise last year.

Retail sales growth, which was already weak, is forecast to have contracted 4 per cent through the end of last month. Car sales, a key component of retailing, fell 18.7 per cent in January and 79.1 per cent last month from a year earlier, according to an industry group.

The data comes a day after China said it will centrally quarantine all arrivals in Beijing for 14 days, after new imported coronavirus cases in the country surpassed locally transmitted infections for a second day.

China reported 20 new cases last Saturday, the National Health Commission said yesterday. Of those, 16 were imported, including five in Beijing. All expenses will be borne by those in quarantine, city deputy secretary-general Chen Bei said. Some may be allowed to quarantine themselves at home.

BLOOMBERG, REUTERS