Manufacturing AUTOMATION

China reports Jan, Feb economic activity worse than expected

March 16, 2020
By Joe McDonald, The Associated Press

China’s consumer spending and factory activity fell more than expected in January and February as it fought a virus outbreak, prompting some forecasters to warn this year’s economic growth might slump to its lowest level since the 1970s.

Retail sales fell 20.5 per cent from a year ago after shopping malls and other businesses were closed in late January, government data showed Monday. Factory output declined by a record 13.5 per cent after the Lunar New Year holiday was extended to keep manufacturing employees at home.

The unexpectedly bleak figures suggest the world’s second-largest economy is shrinking despite the ruling Communist Party’s efforts to revive manufacturing and other industries, some forecasters said.

“This is not the end of the nightmare. Watch out!” wrote economist Iris Pang of ING in a report.


ING cut its forecast of this year’s economic growth to 3.6 per cent, 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 per cent following the crackdown on the Tiananmen Square pro-democracy protests.

In the current quarter, activity might contract by as much as six per cent from a year ago, the weakest in at least five decades, said Larry Hu of Macquarie Capital. 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 that emerged in central China in December.

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.

Companies say, however, it will be months before factories that make the world’s 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 United States 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,” the director of the Chinese statistics agency, Mao Shengyong, said at a news conference.

Chinese officials earlier expressed confidence the ruling party’s economic goals – which in the past have included annual growth of at least six per cent – can be achieved despite the outbreak.

Economists say that will require a stimulus with higher government spending and bank lending, which will push up debt and might add fuel to inflation that is near an eight-year high.

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 five per cent growth, said Macquarie’s Hu.

:Top leaders will have to rethink the target for this year,” he wrote.

The ruling party’s growth target usually is announced at the annual meeting of China’s ceremonial 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 per cent from a year ago, the statistics agency reported. Investment by private businesses tumbled 26.4 per cent while commercial real estate sales plummeted 39.9 per cent.

The data “point to an even deeper contraction this quarter,” said Julian Evans-Pritchard of Capital Economics in a report.

Auto sales, reported earlier, plunged 82 per cent in February from a year ago. Exports fell 17 per cent in January and February.

March’s consumer spending and factory output might look even worse because it lacks the boost the latest figures got from including early January, before the virus hit, economists said.

Activity is picking up, “but the speed is disappointing,” said Tommy Wu and Louis Kuijs of Oxford Economics in a report.

The past week’s coal use by power plants, one way to measure industrial activity, is down 20 per cent from a year ago, they said. Traffic also is down.

“These data suggest that the economy has so far continued to shrink,” said Wu and Kuijs.

News from © The Canadian Press Enterprises 2020

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