For the first time in decades, China's economy shrank 6.8% in the first three months of 2020. This is due to the coronavirus pandemic, according to the government statistics that were released on April 10. Although the road toward recovery will be long, China may see some growth this year compared to Western countries.
China's economy declines for the first time in decades
China has not experienced this plunge in its economy since it started publishing figures in 1992. This is also the first time that China has reported an economic contraction since 1976 when Mao Zedong, the Communist Party leader, died and it ended a decade of social and economic tumult. The economy of China shrunk 1.6% in 1976.
The three major engines for China's growth are exports, consumer spending, and fixed asset investment. All three were affected after China was placed on lockdown in late January of 2020 in order to contain the spread of the virus. In the first quarter of 2020, the retail spending dropped 19%, while exports plunged 13%. The fixed asset investment declined by around 16%.
China's economic report is a barometer for the United States and Europe. While the country was criticized for its lack of transparency in the pandemic, China has been reporting a declining number of locally transmitted infections, and the lockdown on Wuhan, which is the ground zero of the pandemic, was lifted earlier this month.
China is still far from returning to normal as there are still restrictions in place for most of its cities, even for those that have finished the lockdown period. The country's economic report for Match shows a slight improvement compared to January and February of 2020, but there are still areas that need boosting. Exports and industrial output remained weak as the rest of the world is still fighting the pandemic.
According to Julian Evans-Pritchard, senior China economist for Capital Economics, the March data adds to the signs that China's economy is past the worst. He added that China may still not be fully acknowledging the extent of the downturn. The labor market of China continues to show signs of strain. The unemployment rate jumped to 5.9% in March, this means that 3.6 million people were out of work in 2020.
Unemployment in China
The unemployment rate in China is of particular concern for the authorities. While the metric has been criticized for being too stable, the official data has barely moved beyond 4% and 5% in recent years.
Concerned officials already stated that the existing economic slowdown would take a toll on the jobs in the country. China acknowledged the unemployment record during the pandemic and they are fully aware of the problem that they have.
Chaoping Zhu, a global market strategist for J.P Morgan Asset Management stated that stability in employment might become the top policy priority for 2020. Job losses caused by the pandemic have also weighed on consumer spending, which is another problem for a country that was already dealing with domestic demand.
Zhu added that income declines that are recorded could push the government to consider additional measures in order to ease the economic pain of the country. It can include rate cuts that are meant to make it cheaper and easier for smaller businesses to borrow money and operate.
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