The coronavirus’ impact on China’s economy was made plain in new numbers released on Monday, which showed a dramatic collapse across the board. Amid a widespread shutdown of manufacturing operations, industrial production – a measure of manufacturing, mining and utilities activity – declined by 13.5 per cent over the first two months of the year, combined data for January and February showed. Finbarr Bermingham, Orange Wang specially for the South China Morning Post.
This was the first decline on record, although ordinarily the data is released monthly. But the numbers were well below expectations of a 3.0 per cent decline.
Retail sales, a key metric of consumption in the world’s second largest economy, fell by 20.5 per cent, again the first decline on record. This was well below the median forecast of a group of analysts, conducted by Bloomberg, which predicted a 4.0 per cent contraction.
Fixed asset investment – a gauge of expenditure on items including infrastructure, property, machinery and equipment – collapsed by 24.5 per cent, much worse than analysts’ predictions of minus 2.0 per cent. This was the first shrinkage on record.
That China’s economy sank to all time lows in the first two months of the year is not a surprise, given that the period included the Lunar New Year holiday, plus a prolonged containment effort that left hundreds of millions of people unable to return to work and factories struggling to get back to capacity.
As of last week, around 95 per cent of large companies outside the epicentre of the virus in Hubei province had reopened, according to the Ministry of Industry and Information Technology, while “about 60 per cent” of small to medium-sized firms had returned to work.
The shutdown has led analysts to downgrade their outlook for the Chinese economy, with most now expecting a historic contraction in the first quarter.
While China is slowly getting back up to speed, other major economies are just starting to feel the bite of coronavirus. Overnight the United States ramped up its response to the pandemic, with the US Federal Reserve cutting interest rates to near zero, as well as announcing that it would embark on a new round of quantitative easing.
Global markets shrugged off the cut, suggesting that more creative policy measures may be required to arrest the prospect of a recession.
The forthcoming lockdown in large parts of the world will also hamper China’s recovery effort. A supply side hit to the global economy is predicted from China’s shutdown, but with the West now dealing with severe outbreaks of their own, demand is set to provide an economic shock too.
Some firms in China are concerned already that multinational companies may reduce their reliance on Chinese-made products, accelerating a shift to alternative manufacturing bases and damaging the extensive supply chain that has been constructed in the mainland over recent decades.
Monday’s data showed that manufacturing output alone had slumped by 15.7 per cent over January and February, while investment in the sector fell by a massive 31.5 per cent.
A spokesman for the National Bureau of Statistics, Mao Shengyong, said that while the virus was responsible for the historic slump, “the impact of the virus is short-term and manageable”.
“Only this time next month, will we know what first quarter gross domestic product looks like,” Mao said. “It will mainly depend on March’s performance, since this month accounts for about 40 per cent of quarterly economy in the first quarter, and January and February combined account for 60 per cent.”
China’s central bank on Sunday said it would use “a variety of measures” to bring down the cost of borrowing for companies that have been hit hard by the coronavirus outbreak.
Analysts, meanwhile, have called for a coordinated effort among policymakers around the world to deal with the fallout of the pandemic, which should include fiscal stimulus.
“Ultimately the global economic shock from Covid-19 needs a global response. Central banks are ahead of governments on this, but more fiscal policies are being announced each day. We really need to see the fiscal side be more immediate to prevent a longer than needed economic slowdown,” said Kerry Craig, global markets strategist at JP Morgan Asset Management.