Coronavirus devastates China’s economy and the ‘nightmare’ is not over

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“We are living in very, very unprecedented times,” said Adrian Zuercher, director of Asia-Pacific asset allocation at UBS’s chief investment office, CNN Business told CNN Business.

Retail sales fell 20.5% in January and February from the same period in 2019, industrial production fell 13.5% and capital investment fell nearly 25%, the Bureau said. National Statistics. All three data points were much weaker than analysts had expected, and the drop in industrial production was the steepest contraction on record.

March data could be even worse.

“February’s plunge was diluted in the data by averaging January, when most of the disruption has yet to be felt,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

Larry Hu, chief China economist for the Macquarie Group, said his “best estimate” is that China’s $14 trillion economy will contract 6% in the first quarter, compared to the same period a year ago. one year old.

“Now it’s clear that this would be the worst in nearly 50 years,” he said. The last time China experienced an economic contraction was in 1976, when the death of Communist Party leader Mao Zedong ended a decade of social and economic turmoil in China.

The hit to China’s economy in the first quarter was “devastating”, according to Ting Lu, chief China economist at Nomura. “In our view, the only question is to what extent [Q1 GDP] will be.”

The Chinese government has tried to revive the economy by encouraging businesses to return to work, but under strict conditions aimed at preventing a surge in the number of coronavirus cases.

The National Bureau of Statistics said the economy could improve in the second quarter as businesses return to work and various policy measures, including interest rate cuts, liquidity injections and debt reductions. taxes and fees, affect the economy.

But analysts said the recovery is likely to be very weak given soaring Chinese unemployment, which will depress consumer spending, and the global spread of the virus, which will dampen exports even if factories return to normal operations.

China’s unemployment rate soared from 5.2% in December to 6.3% in February.

“This is not the end of the nightmare,” said Iris Pang, chief economist for Greater China at ING, on Monday.

Rebound unlikely soon

“The spread of Covid-19…in almost every country means that global demand will come to a screeching halt and global supply chains will still be interrupted as factories around the world suspend operations,” she said. .

There have now been more reported cases of the new coronavirus outside mainland China than inside, according to figures from the World Health Organization and public health agencies tracked by CNN. The virus has already killed more than 6,400 people worldwide and infected more than 169,000, according to an estimate from Johns Hopkins University.

Retail sales are also expected to recover very slowly as some major Chinese cities have reported imported cases of the coronavirus and consumers are still hesitant to visit malls and restaurants, Pang added.

Lu de Nomura warned there was a risk of a second coronavirus outbreak due to the global pandemic and China’s urgent need to restart its economy.

More political support

China will roll out stronger relief measures to counter the impact of the virus, National Bureau of Statistics spokesperson Mao Shengyong said Monday at a press conference that accompanied the release of the shocking data.

It will include fiscal and monetary measures to further ease the tax burden, increase public spending and reduce borrowing costs, as well as special policies to protect jobs.

But Mao said the government would refrain from flooding the market with excessive liquidity, to avoid pushing consumer prices even higher.

China’s central bank has again pumped liquidity into the money market, having injected hundreds of billions of dollars since February.

On Monday, the People’s Bank of China injected 100 billion yuan ($14.3 billion) into the financial system by offering loans to banks. On Friday, the central bank announced that it would reduce the amount of cash banks must hold as reserves. The move would also inject 550 billion yuan ($78.6 billion) into the banking system.

PBOC officials also said they would take other steps to reduce borrowing costs to protect the economy.

After the PBOC’s action on Monday, Lu expects Beijing to take additional financial relief and policy easing measures in the coming months, including cuts to the medium-term lending facility. and the benchmark deposit rate, as well as tax and rent reductions for businesses.

But he also said Beijing was unlikely to launch a massive stimulus package like the one from the 2008 global financial crisis because it has much less room for action.
China’s debt has risen, the current account surplus has fallen and its foreign exchange reserves have fallen since then. Soaring pork prices because of swine fever also pushed up inflation. These constraints have made it difficult to restore economic growth with cheap credit and heavy borrowing, Lu said.

— Sherisse Pham contributed to this report.

— An earlier version of this story misspelled the name of National Bureau of Statistics spokesman Mao Shengyong.

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