Coronavirus is taking a brutal toll on China’s economy

Bumpy road ahead.
Bumpy road ahead.
Image: cnsphoto via REUTERS
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While China’s draconian measures for controlling the coronavirus have been seemingly effective, they have also inflicted serious pain on the country’s economy.

China reported today (Mar. 16) a slew of economic data that are far worse than analysts expected, building up to first-quarter GDP numbers that are expected to be awful. Overall, the data points to the world’s second-largest economy seeing its first contraction in quarterly GDP since 1989, when the country started releasing data comparable to today.

The country clocked a 20.5% decline (link in Chinese) in retail sales for January and February compared with the same period a year before, according to China’s National Bureau of Statistics. That is much worse than the median forecast of a 4% decline according to analysts surveyed by Bloomberg, as well as an 0.8% expansion expected by analysts polled by Reuters. The bureau releases retail sales figure monthly but combines them for January and February, when figures are skewed by the Lunar New Year festival, which falls in that period and usually results in a huge jump in consumption.

This year there was no such boost. The holiday, which fell in the last week of January, was preceded by China putting in place mandatory quarantines that affected millions of residents, and upended travel, movie theaters, eating out, and other consumption. Now officially a pandemic, the virus has killed over 6,500 and infected more than 169,000 people worldwide.

“The impact of the coronavirus on consumption has really started since late January. Almost the whole February saw retail sales halted. Apart from daily necessities and food, other categories of retail goods have all been impacted hugely by the epidemic,” Terry Hong, an analyst with Chinese brokerage Guotai Junan International, told Quartz. He also expects retail sales for March to continue declining, and the first half of the year to sustain “significant impact” from the virus.

Restaurants in China were hit the most, with sales contracting by 43.1% during the two months. General merchandise sales also plunged by 17.6%. Online sales, perhaps shored up somewhat by demand from a quarantined population, dropped by 3%.

Some other key indicators of China’s economy released today also look bleak. The country’s fixed-asset investment outside rural households, which mainly reflects construction activity, plunged 24.5% (link in Chinese) for January and February year-on-year.

Industrial output, an important indicator for measuring economic performance, also shrank by 13.5% (link in Chinese) for the two months, compared with a median forecast of a 3% decline from analysts polled by Bloomberg. Factory activity usually halts ahead of the holiday and then starts up again right after it. But now factories and companies have been struggling to resume work as some of their employees from worst-hit areas were banned from traveling back or have to be under self-quarantine for at least 14 days when they return.

Meanwhile, with the virus now affecting economic activity in Europe and the US as well, China is likely to see further impacts to its economy from slowing demand elsewhere. First-quarter GDP data will be out a month from now.