(17 April 2020)  Chinese GDP contracted 6.8 percent in the first quarter of 2020 according to China's National Bureau of Statistics. While it is the first decline in the history of quarterly GDP growth records, which date back to 1993, annual GDP, which has a longer history, dropped below zero once before in 1976. It is still unclear whether the Chinese economy will register a decline at the end of 2020. According to the IMF's latest World Economic Outlook, China is among the critical few economies that are still projected to grow in 2020.

 

China's rapid economic downturn is tied to the Coronavirus pandemic and associated measures to suppress it. In absolute terms, China lost around $242 billion in GDP in the first quarter, well above the $125 billion of expected loss estimated by the World Bank.

  • In the previous two quarters, China's economy grew at 6 percent year-on-year, a slight drop from 6.2 percent in the second quarter of 2019 and, more notably, a nearly 30 year low. Not even during the global financial crisis of 2008-2009 did China’s GDP growth rate fall below 6.4 percent.
  • The economic slowdown in the third quarter of 2019 was in part attributed to the trade war with the United States, which hurt Chinese exports. In 2019, export growth halted and slipped into negative rates, whereas 2018 boasted 10 percent export growth year-over-year.

The decline in exports and expectations from the trade war chilled investment, employment, and household consumption in China, the strength of which to date has sustained the country's economic growth. But in current conditions under 'the Great Lockdown', Chinese consumers cannot support the economy, and, as a result, we see the decline of the world's largest economy. China's economic troubles will likely extend beyond the first quarter not only because of COVID-19 but also because of financial structural problems, such as high debt levels, decelerating real estate market, and unproductive use of capital.

 

Read more on Evidence for Chinese Economic Recession in our Insights blog.

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