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China’s economy contracted for the first time in decades last quarter, as drastic measures to contain the coronavirus pandemic put activity at a standstill, official data showed on Friday.
Gross domestic product contracted 6.8% in the January-March quarter compared to the same period of the previous year, according to figures published by the National Statistics Office (NBS).
It was the first negative growth reported by the world’s second-largest economy since Beijing began recording quarterly data in the early 1990s.
The figure marks a sharp drop from China’s six percent expansion in the fourth quarter of last year, but it was slightly better than economists’ contraction forecast of 8.2% in an AFP survey.
However, economists have long had doubts about the accuracy of Chinese official data, suspecting that the numbers have increased for political reasons.
And analysts have warned of the most difficult times ahead, with weaker external demand for Chinese products that will weigh on growth as Covid-19 hits major export markets.
“We are now facing increasing pressure in the prevention of imported epidemic infections, as well as new difficulties and challenges in resuming work and production,” NBS spokesman Mao Shengyong said at a press conference.
GDP growth expectations for the full year have fallen to 1.7%, according to the AFP survey, the worst annual performance since 1976.
The International Monetary Fund has determined that China’s full 2020 expansion will be even lower, at 1.2%, but is forecasting a strong rebound to 9.2% in 2021.
It has also painted a grim picture of the global impact of the Covid-19 outbreak, predicting the deepest economic contraction since the Great Depression of the 1930s.
Friday’s data showed a 1.1 decrease in industrial production for March, reflecting the persistent damage from factory closings even as travel restrictions in the country were gradually eased and companies revived.
Retail sales also fell 15.8% last month, as many consumers stayed home and avoided crowds due to fear of a resurgence in virus cases.
But the urban unemployment rate decreased slightly to 5.9% last month, after rising to 6.2% in February.
China has set an ambitious goal to eradicate extreme poverty and build a “moderately prosperous society” by the end of 2020, but this is increasingly threatened by the consequences of the pandemic.
“Public records suggest that at least half a million companies dissolved in the first quarter and more are likely to close,” Capital Economics Asia chief economist Mark Williams said in a report this week.
Surveys pointed to more layoffs in March, and unemployment will likely continue to be higher in the coming months, he said.
Some analysts believe the worst is over for China, but they still expect a slow recovery.
Williams said depressed demand in foreign markets could cut Chinese exports, which account for 15% of national GDP, by as much as half.
The impact on export demand may have reduced 1.8% points of China’s real GDP growth in the first quarter, Nomura chief economist in China Lu Ting said earlier.
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