China’s economy shrinks amid pandemic

First-quarter figures are worst posted since 1967 and experts predict trade is likely to remain dismal

CHINA is expected to record little to no growth this year after suffering an economic contraction in the first quarter for the first time since the Cultural Revolution. The world’s second-biggest economy shrank 6.8pc in the three months to March compared with the same period last year as factories and shops closed to reduce the spread of Covid-19.

It was China’s worst performance since 1967, according to analysts at ING, and a blow to the Communist Party’s pledge of continued prosperity in exchange for untrammelled political power. Mao Shengyong, a spokesman for the National Bureau of Statistics, said the second quarter was expected to be much better than the first, but weak consumer spending and factory activity pointed to a longer recovery.

Economists at Oxford Economics, UBS and Nomura forecast that although the worst is behind China in terms of containing the outbreak, lingering fears over the virus would weigh on growth for the rest of the year. Zhu Zhenxin, an economist at the Rushi Finance Institute in Beijing, said: “I don’t think we will see a real recovery until the fourth quarter or the end of the year.”

Analysts in China and abroad have long harboured doubts about the accuracy of the official data, suspecting that the numbers are massaged for political reasons. But Goldman Sachs noted “the decision to publish something much lower than any previous quarterly GDP reading represents marked progress which will likely enhance the credibility of official statistics”.

Retail spending, which accounted for 80pc of Chinese economic growth last year, sank by 19pc in the first quarter year-on-year, while China’s other major growth driver, investment in factories and other fixed assets, fell 16pc. Although factories and offices started reopening in early March, cinemas, hair salons and other businesses that are considered non-essential remain closed and tourism is struggling to recover as most foreigners are banned. Car sales plunged 48.4pc in March from last year, which was better than February’s 81.7pc drop but adds to a two-year decline that was already squeezing manufacturers in the car industry’s biggest market.

Exports fell by 6.6pc in March yearon-year, a better performance than January and February, but forecasters warn that trade is likely to remain dismal now the focus of the outbreak has shifted to Europe and the United States.