BEIJING • China's first-quarter economy shrank for the first time in almost three decades of records, as the coronavirus paralysed production and spending, raising pressure on the authorities to do more to stop mounting job losses.
Gross domestic product (GDP) fell 6.8 per cent in the January-March period year on year, official data showed yesterday, slightly larger than the 6.5 per cent decline forecast by analysts and reversing a 6 per cent expansion in the fourth quarter of last year.
The contraction is also the first in the world's second-largest economy since at least 1992 when official quarterly GDP records started.
Providing a silver lining was a much smaller-than-expected fall in factory output last month, suggesting efforts to restart parts of the economy since February are working.
But analysts say China faces an uphill battle to revive growth as the global spread of the virus devastates demand from major trading partners, while domestic consumption also remains under pressure.
"First-quarter GDP data is still largely within expectations, reflecting the toll from the economic standstill when the whole society was on lockdown," said Industrial Bank analyst Lu Zhengwei in Shanghai. "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 the pandemic spreads."
For this year, China's economic growth is set to stumble to 2.5 per cent, its slowest annual pace in nearly half a century, a Reuters poll showed this week.
On a quarter-on-quarter basis, GDP fell 9.8 per cent in the first three months of the year, the National Bureau of Statistics said, just off expectations for a 9.9 per cent contraction, and compared with 1.5 per cent growth in the previous quarter.
Financial markets did not react significantly to the contraction, which was broadly in line with consensus expectations.
Statistics bureau spokesman Mao Shengyong told a press briefing after the data's release that China's economic performance in the second quarter is expected to be much better than in the first. However, weaker domestic consumption, which has been the biggest growth driver, remains a concern, as incomes slow and much of the rest of the world falls into recession.
"We are hesitant to think that this is just a one quarter event, Q2 will also likely be lower than expected," said Mr Ben Luk, senior multi-asset strategist at State Street Global Markets in Hong Kong. "To offset weakness in external demand, we will see some policy support later this month or early May."
Industrial production fell by a less-than-expected 1.1 per cent last month from a year earlier. Highlighting the challenges in consumption, however, was a 15.8 per cent fall in retail sales, which was larger than expected.
Economists' forecasts for first-quarter GDP ranged widely given the uncertainties around Covid-19's economic and social impact in China. The virus has infected more than two million people globally and killed over 140,000. China, where the virus first emerged, has reported more than 4,600 deaths although new infections have fallen significantly from their peak.
Of major concern for policymakers is social stability among its 1.4 billion citizens, millions of whom migrate from rural areas to cities to find work each year.
China's urban jobless rate was at 5.9 per cent last month, down from 6.2 per cent in February, suggesting the pain in the labour market is yet to be seen in official numbers.
However, analysts expect nearly 30 million job losses this year due to stuttering work resumptions and plunging global demand, outpacing the 20-plus million layoffs during the 2008-09 financial crisis.
Beijing has pledged to take more steps to combat the impact of the pandemic, as mounting job losses threaten social stability.
The central bank has already loosened monetary policy to help free up the flow of credit to the economy, but its easing so far has been more measured than during the global financial crisis.
The government will also lean on fiscal stimulus to spur infrastructure investment and consumption, which could push the 2020 budget deficit to a record high.