China’s consumer spending and factory activity fell more than expected in January and last month as it fought the outbreak of COVID-19, prompting some forecasters to warn that this year’s economic growth might slump to its lowest level since the 1970s.
Retail sales fell 20.5 percent from a year earlier after shopping malls and other businesses were closed in late January, Chinese government data showed yesterday.
Factory output declined by a record 13.5 percent after the Lunar New Year holiday was extended to keep manufacturing employees at home, the data showed.
The figures suggest that the world’s second-largest economy is shrinking despite the Chinese Communist Party’s efforts to revive manufacturing and other industries, some forecasters said.
“This is not the end of the nightmare. Watch out!” ING Bank NV economist Iris Pang (彭藹嬈) wrote in a report.
ING cut its forecast of this year’s economic growth to 3.6 percent, which would be the weakest since at least the 1970s, before market-style reforms set off China’s boom. It would exceed 1990’s low of 3.9 percent following the crackdown on the Tiananmen Square pro-democracy protests.
In the current quarter, activity might contract by as much as 6 percent from a year earlier, the weakest in at least five decades, Macquarie Group head of greater China economics Larry Hu (胡偉俊) said.
Others said they expect a contraction this quarter, but gave no figures.
Beijing is trying to head off a deeper downturn, which would raise the risk of politically dangerous job losses.
Authorities have eased some of the controls that idled factories and closed shopping malls, restaurants and other businesses, and left city streets empty and eerily silent for weeks in an effort to contain the coronavirus, which emerged in central China in December last year.
The government has cut interest rates and is promising tax breaks and other aid, especially for small, private companies that are China’s economic engine.
However, companies say that it will be months before factories that make smartphones, toys and other consumer goods return to normal activity.
Many are short of raw materials and employees because travel and other controls still are in place in areas with tens of millions of people.
The outlook is further clouded by anti-virus curbs that are shutting down the US and European economies, and might depress demand for Chinese exports and disrupt travel and other activity.
“There are indeed some external epidemics that are spreading, which may increase our uncertainty,” Chinese National Bureau of Statistics Director Mao Shengyong (毛盛勇) said at a news conference.
Officials will “strive to minimize the impact of the epidemic and accomplish this year’s goals,” Mao said. “There will be more improvement in the second quarter.”
Still, it will be “extremely difficult” to achieve even 5 percent growth, Hu said. “Top leaders will have to rethink the target for this year.”
The ruling party’s growth target usually is announced at the annual meeting of China’s legislature. That usually occurs in early March, but the event was postponed due to the virus, with no new date set.
Investment in factories, real estate and other fixed assets fell 24.5 percent from a year earlier, the bureau reported. Investment by private businesses tumbled 26.4 percent, while commercial real-estate sales plummeted 39.9 percent.
The data “point to an even deeper contraction this quarter,” Capital Economics Ltd economist Julian Evans-Pritchard said in a report.
Vehicle sales, reported earlier, plunged 82 percent last month from a year earlier. Exports fell 17 percent in January and last month.
This month’s consumer spending and factory output might look even worse because they lack the boost the latest figures got from including early January, before the virus affected businesses, economists said.
Activity is picking up, “but the speed is disappointing,” Tommy Wu (胡東安) and Louis Kuijs of Oxford Economics Ltd said in a report.
The past week’s coal use by power plants, one way to measure industrial activity, is down 20 percent from a year ago, they said.
Traffic is also down.
“These data suggest that the economy has so far continued to shrink,” Wu and Kuijs said.
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