China's manufacturing, retail slump deeper than expected

BEIJING • China suffered an even deeper slump than analysts feared at the start of the year as the coronavirus outbreak shuttered factories, shops and restaurants across the nation, underscoring the fallout now facing the global economy as the virus spreads around the world.

Industrial output fell 13.5 per cent in January and February from a year earlier, versus a median estimate for a 3 per cent contraction.

Retail sales fell 20.5 per cent in the period, compared with a projected 4 per cent fall.

Fixed-asset investment dropped 24.5 per cent, versus a forecast 2 per cent decline.

The unemployment rate rose to 6.2 per cent, the highest on record.

Gross domestic product is now all but certain to contract in the first quarter compared with the same period last year - the first time that has happened since comparable data began in 1989.

"Covid-19 made the economy stop, from factories to spending," said Ms Iris Pang of ING Bank in Hong Kong. "As the coronavirus spreads to almost everywhere, global demand and global supply chains will take a hit and will feedback to China's manufacturers and exporters in March and April."

The coronavirus outbreak in Wuhan dramatically worsened in January, prompting China to lock down Hubei province, extend holidays and restrict travel and business across the country. That brought much of the nation's economic activity to a halt last month, undercutting a stabilisation seen in December.

While there are increasing signs that companies and people are getting back to work this month, the economy is still not back to normal.

Even as governments in China and some other Asian nations look to be getting their outbreaks under control, the coronavirus is now spreading rapidly in Europe, the United States and other parts of the world. That will likely hit demand for Chinese exports, extending the damage to firms and the economy.

"China is bottoming out. But it's not going to be a V-shaped rebound," said Mr Raymond Yeung, chief China economist at Australia and New Zealand Banking Group in Hong Kong.

The People's Bank of China acted last Friday to support the economy, providing banks with more money to lend by cutting the amount of cash they must place in reserve at the central bank.

It refrained from cutting the interest rate of its medium-term loans yesterday in step with the US Federal Reserve. The move signals that it will maintain a targeted, measured easing approach for now, in spite of the bad economic data.

"The data is awful," said Macquarie Group chief China economist Larry Hu. "It's clear that the coronavirus is both a supply shock and a demand shock. It hurts both internal and external demand. It brings both inflation and deflation pressure. Hence we don't expect massive stimulus coming out any time soon, but China will stay in the current rate-cutting cycle."

BLOOMBERG