Covid 19 coronavirus: China's economy shrinks for first time in four decades

The fallout from the coronavirus pandemic ended an era of uninterrupted growth dating back to the late 1970s. Photo / AP

China's economy shrank at the start of the year for the first time in more than 40 years, after the fallout from the coronavirus pandemic ended an era of uninterrupted growth dating back to the late 1970s.

Gross domestic product in the first quarter plunged 6.8 per cent year-on-year, the National Bureau of Statistics said on Friday.

The historic contraction in China, the engine of global growth for the past two decades, is the starkest economic signal to emerge from a pandemic that originated in Wuhan and has wreaked havoc around the world.

The official data comes in the same week that the IMF warned of the worst global economic outlook since the Great Depression, with output losses this year expected to far exceed those that followed the financial crisis of 2008.

Fixed asset investment in the first quarter fell 16 per cent compared to last year, while infrastructure investment dropped 20 per cent. Total retail sales of consumer goods fell by 16 per cent in March.

China's economy, the world's second largest, was already under pressure before coronavirus hit.

Last year, the economy expanded by 6.1 per cent, its lowest level in almost three decades.

The data published on Friday indicate that growth for the full year is now expected to come in at a far lower level, jeopardising the government's 2010 pledge that it would double the size of the economy by the end of this year.

The decline, which was worst than analyst expectations, will put pressure on the country's leadership to provide further stimulus and avoid another decline in the second quarter that would plunge the China into a full-blown recession.

The government has already taken measures to support companies by pumping liquidity into the banking system to boost lending to struggling businesses and introducing tax breaks of Rmb1.6 trillion ($375 billion).

The urban unemployment rate had already reached a record high of 6.2 per cent by late February, up from 5.3 per cent in January. The government typically sets an urban job creation target of at least 10m a year.

This month, the government eased travel restrictions on Wuhan. Key economic indicators, such as traffic levels in major cities and factory activity, have also shown signs of recovery as the country attempts to return to work.

Written by: Thomas Hale and Xinning Liu

© Financial Times