Virus had ‘eye-popping’ impact on China’s economy: Beige Book

(C) Reuters. FILE PHOTO: People wearing face masks walk inside an office building at the Lujiazui financial district in Pudong

BEIJING (Reuters) – China’s economy suffered through an “eye-popping” first quarter as a coronavirus epidemic hammered business activity, with deterioration even as firms were supposed to be going back to work, a private survey showed on Tuesday.

After surveying thousands of Chinese firms, China Beige Book International (CBB) suggested that “a 10-11% GDP contraction in the first quarter is not unreasonable.”

Indicators in the survey “continued to deteriorate even into mid-March when most firms were re-opening and supposedly ‘back to work,'” a statement from the U.S.-based consultancy said.

Private-sector analysts are slashing their growth forecasts for China to lows not seen since the Cultural Revolution ended in 1976 as the coronavirus epidemic led to widespread travel curbs and halted production in the world’s second-largest economy. The respiratory disease has killed more than 3,200 people and infected over 81,000 on the Chinese mainland.

New local infections in China have fallen sharply but China’s recovery now depends on other factors, CBB said.

“A few weeks ago, a V-shaped recovery in China wasn’t outlandish. With the COVID-19 virus spreading quickly, return-to-normalcy is looking more implausible by the day,” the statement said.

“Even if China can, its partners can’t – one by one, they are shutting down, for weeks or perhaps months. The China recovery story is no longer just about domestic resilience, but also factors beyond Beijing’s control.”

CBB warned that global markets do not seem prepared for the full extent of China’s first quarter weakness.

In addition, Beijing may be unwilling to admit through official statistics just how bad the economic impact of the virus was, the statement said.

“Investors may therefore be severely overestimating the extent of China’s recovery and hence the extent to which China can cushion a global downturn.”

Almost three quarters of executives interviewed said earnings had decreased in the first quarter, with the service sector hardest hit. Almost half of business-to-business firms reported a fall of more than 10% in sales volume in the first quarter.

Most analysts now expect China’s first quarter to contract, with estimates revised after dismal activity data for the first two months of the quarter.