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Caixin

China braces for first quarterly contraction since 1992

Major economic indicators plunge in January and February

The novel coronavirus is largely under control in China but is spreading outside the country, which will likely reduce demand for Chinese goods.   © Reuters

China's economy could soon see its first quarterly decline since 1992 due to the ongoing coronavirus pandemic.

Several financial institutions have lowered their forecasts of China's gross domestic product after the National Bureau of Statistics released data showing major economic indicators, including infrastructure investment, factory output and retail sales, plunged by double-digit percentages in the first two months of this year.

Goldman Sachs (Asia) Ltd. revised down its projection for China's first quarter GDP to a year-on-year contraction of 9% from a previous estimate of 2.5% growth, according to a Tuesday research note. Standard Chartered Bank wrote in a Monday note that it had lowered its estimate to a 4.2% year-on-year decline from 2.8% growth.

Wang Tao, an economist of UBS Group AG, wrote in a Caixin column on Wednesday that she had lowered her first-quarter GDP forecast to a 5% decline and full-year estimate to 1.5% growth. Morgan Stanley forecast China's economy will contract 5% year-on-year in the first quarter before rebounding into expansionary territory in the second quarter in a Tuesday report.

The novel coronavirus outbreak that began in December has been largely brought under control in China, but it is spreading rapidly outside the country. As of Wednesday afternoon, the virus had infected nearly 200,000 people worldwide, including over 81,000 in China, killing almost 8,000.

Goldman Sachs wrote that though China has brought the coronavirus under control within its borders, the pandemic will constrain an economic rebound in the second quarter. They forecast that economic contraction in the U.S., the euro area and Japan in the coming quarter will weaken external demand for Chinese goods and services.

Those factors mean China's economy will only grow 1.5% in the second quarter, the bank estimated. It also lowered its estimate of China's 2020 full-year GDP growth to 3% from 5.5%.

UBS economist Wang was more pessimistic. She estimated full-year growth would be 1.5%, even if the Chinese government hands out more than 2% of GDP in fiscal support measures and further eases monetary and credit policies. She said full-year GDP growth is not likely to surpass 3% even with a better-than-expected rebound in real estate and more-than-expected fiscal stimulus.

However, as the global economy is set to gradually recover once the pandemic is under control, Wang forecast China's GDP growth will rebound to 7.5% in 2021.

Economists with Standard Chartered are more optimistic. They wrote that though the coronavirus impact is likely to reduce external demand, the losses could be partly offset by China's relatively stronger ability to resume and maintain production compared with other countries. They forecast a strong recovery in the economy driven by increased policy support -- with GDP growing 6.1% in the second quarter, 6.3% in the third quarter and 6.4% in the fourth quarter. Their full-year GDP projection was 4%, down from 5.5% previously.

China's GDP grew 6.4% in the first quarter of last year and expanded 6.9% in the same period in 2018, according to the NBS.

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Read also the original story.

Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei recently agreed with the company to exchange articles in English.

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