Update: Key Economic Gauges Plunge as Economy Feels Coronavirus Pain

China’s key economic indicators plunged by double-digit percentages in the first two months of 2020 for the first time since record-keeping began, as the coronavirus outbreak sharply curtailed business activity. The declines were steeper than economists had anticipated, despite expectations that the economy would be hit hard by Covid-19 and ensuing virus control measures.

Fixed-asset investment, a key driver of domestic demand that includes infrastructure investment, plunged 24.5% year-on-year in the first two months of 2020, according to data (link in Chinese) released Monday by the National Bureau of Statistics (NBS). The drop marked a major reversal from 5.4% growth for the whole of last year, and well below the median forecast of a 1% fall from a Caixin poll of economists.

Government-driven infrastructure investment plunged 30.3% in the first two months, reversing a 3.8% increase for the whole of 2019. Investment in real estate development fell 16.3% from a year earlier in the first two months, compared with 9.9% growth last year, NBS data showed (link in Chinese).

China normally releases economic data on a monthly basis. But it combines the months of January and February into a single unit due to variability from the Lunar New Year holiday, a period when business typically drops sharply. It can fall in either month depending on the year.

Economists from Nomura International (Hong Kong) Ltd. said the actual shock of the coronavirus outbreak to the economy could be even greater than the data suggest, because widespread transit restrictions only started Jan. 23. They forecast in a note that the major indicators for economic activity will also decline in March as businesses resume at a relatively slow pace, and that China’s GDP will “almost certainly” fall in the first quarter.

As the coronavirus outbreak has rapidly developed into a global pandemic, it is increasingly unlikely that China’s economy will rebound in the short term, they said, citing slumping overseas demand and the supply shock.

Domestic conditions should improve slowly in the coming months, but mounting global disruption will hold back the pace of recovery, economists with London-based research firm Capital Economics Ltd. wrote in a note.

The novel coronavirus outbreak which began in December has been largely brought under control in China, but it is spreading rapidly outside the country. As of Monday afternoon, the virus had infected more than 169,000 people worldwide, including over 81,000 in China, killing at least 6,500.

China’s retail sales, which include spending by governments, businesses and households, fell 20.5% year-on-year (link in Chinese) for January and February, missing the median forecast of a 2% drop by the Caixin poll.

Value-added industrial output, which measures production by factories, mines and utilities, plunged 13.5% (link in Chinese) over the two-month period, reversing 5.7% growth from the whole of 2019 and sliding far below economists’ median forecast of a 1% decline in the Caixin poll.

The surveyed urban unemployment rate rose to 6.2% in February, up from 5.3% in the previous month, according to (link in Chinese) the NBS.

Policymakers have been using monetary and fiscal stimulus to offset the pandemic’s economic impact. Over the past few weeks, China has injected liquidity into financial markets by cutting policy rates and banks’ reserve requirement ratios, and cut firms’ social insurance contributions for their employees.

Nomura economists expect more easing measures in coming months, but they doubt authorities’ ability to launch a massive stimulus package, citing limited policy space.

Contact reporter Guo Yingzhe (yingzheguo@caixin.com), editors Yang Ge (geyang@caixin.com) and Gavin Cross (gavincross@caixin.com)

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