China Economy

Supply impact of the coronavirus outbreak is waning, but demand shock will linger, economist says

Key Points
  • In January and February, industrial output fell by 13.5% from the same period a year earlier, the weakest reading since January 1990 — when Reuters' record began.
  • Retail sales in January and February shrank 20.5% from a year ago, compared with a 8% growth in December as fearful consumers avoided crowded places like malls, restaurants and cinemas.
  • The economy in China came to a standstill starting in late January as the government locked down cities and implemented quarantines to contain the spread of the coronavirus disease, formally known as COVID-19.
Chinese workers assemble electronic components at the Taiwanese technology giant Foxconn's factory in Shenzhen, China.
AFP | AFP | Getty Images

China's industrial production is likely to improve in March over a slump in January and February due to the coronavirus outbreak, but consumer demand will take longer to recover both in the country and globally, an economist said Monday.

"We will see some recovery, but this recovery, I think, is being undermined by the global spread as well," said Bo Zhuang, chief China economist at TS Lombard.

According to the latest figures from the World Health Organization, there have been at least 153,648 cases of coronavirus globally, with at least 5,746 deaths from COVID-19.

The economy in China came to a standstill starting in late January as the government locked down cities and implemented quarantines to contain the spread of the coronavirus disease, formally known as COVID-19. In the last few weeks, workers have slowly started going back to work.

China's industrial output contracted at the sharpest pace in 30 years in January and February, according to Reuters records.

In those two months, industrial output fell by 13.5% from the same period a year earlier, the weakest reading since January 1990 — when Reuters' record began. That figure also marks a sharp reversal from the 6.9% growth in December, according to data from the National Bureau of Statistics. Analysts polled by Reuters had expected industrial production to rise 1.5%.

Meanwhile, retail sales in January and February shrank 20.5% from a year ago, compared with a 8% growth in December as fearful consumers avoided crowded places like malls, restaurants and cinemas.

"We were worried about supply-side issues, but now it's becoming a demand shock issue," said Zhuang.

Supply chains around the world have been disrupted by factory closures in China as workers have been told to stay home.

The global spread of the coronavirus is now shutting down cities and regions across Europe as well as the U.S. Although Chinese consumers are starting to go back to work and heading out more, they are wary about spending.

"Industrial production will rebound more quickly because work resumption of large industrial firms happened (first)," said Zhuang.

Smaller outfits like restaurants and service-oriented businesses have "resumed work but there are no customers," said Zhuang.

"I think we are going to see a delayed V-shape (recovery), and this V may be a tilted V or W, or even U. We are not sure," said Zhuang.