China’s economy has been hit hard as the epidemic paralyzes activity

BEIJING (Reuters) – China’s industrial output contracted at the fastest pace in 30 years in the first two months of the year as the rapidly expanding corona virus and stringent containment measures severely disrupted the world’s second largest economy, data showed on Monday.

Urban investment and retail sales also declined strongly and for the first time in existence, confirming the view that the epidemic could have halved China’s economic growth in the first quarter.

From January to February, industrial production fell 13.5% year-on-year, significantly more than expected. This was the weakest since the Reuters record started in January 1990 and a significant reversal in growth of 6.9% in December, as the National Bureau said of Statistics (NBS) showed.

The median forecast by analysts surveyed by Reuters was 1.5%, although the estimates varied widely.

Fixed assets decreased 24.5% year over year compared to 2.8% analysts forecast and 5.4% growth in the previous period.

Retail sales were down 20.5% year over year, compared with an 0.8% increase reported by analysts and an 8% increase in December as consumers feared the virus filled crowded places such as shopping centers, restaurants and cinemas.

Chinese officials said the epidemic was over last week, but analysts warn that it may take months for the economy to return to normal. The rapid spread of the virus around the world raises fears of a global recession that will dampen demand for Chinese goods.

The NBS said in a statement on Monday that the effects of the coronavirus epidemic are manageable and short-term, and that government agencies will strengthen policies to offset the effects and restore economic and social order.

Mainland China reported a general decline in coronavirus infections, but major cities such as Beijing and Shanghai continued to grapple with cases of infected travelers arriving from abroad.

Before the virus worsened significantly, analysts predicted a rapid V-shaped recovery in the Chinese economy, similar to the SARS epidemic in 2003-2004.

However, the outbreak escalated as did many companies closing in late January due to the long New Year holidays, and widespread restrictions on transportation and private travel, as well as mass quarantines, delayed their reopening by weeks.

The Caixin Purchase Manager’s Index, a private measure of factory activity, dropped to its lowest level in February. Production and order intake collapsed and there were signs of violent layoffs. The shortage of parts and components made in China quickly spread through global supply chains to Europe and the United States.

China’s exports fell 17.2% year-on-year in the first two months, while falling demand pushed producer prices back into deflation, as recent data shows.

Some analysts estimate that factories may not return to full production until April, and it may take longer for consumer confidence to recover. Authorities are now looking for Chinese nationals who may bring the virus home from other parts of the world.

Citing the double blow due to supply and demand shocks, analysts interviewed by Reuters expect China’s economic growth in the first quarter to drop almost half to 3.5% from 6% in the previous quarter. Some suspect that the economy even shrank quarterly.

For the year, growth was expected to slow to 5.4%, which would be the slowest since 1990.

Reporting by Kevin Yao, Huizhong Wu and Stella Qiu; Edited by Sam Holmes

Our standards:The Thomson Reuters Trust Principles.



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