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Chinese factories’ profits fell more than 36% in the first three months of the year from a year earlier, according to official data  (Photo: Bloomberg)
Chinese factories’ profits fell more than 36% in the first three months of the year from a year earlier, according to official data (Photo: Bloomberg)

China economic data indicate V-shaped recovery is unlikely

Factory-gate prices post steepest decline in four years in April as coronavirus pandemic shrinks demand globally

BEIJING : China’s factory-gate prices contracted in April, falling by the steepest margin in four years, as manufacturers struggled with deflationary pressures from the coronavirus pandemic, which has crimped demand both at home and abroad.

The producer-price index dropped by 3.1% from a year earlier in April, compared with a 1.5% fall recorded in March, the National Bureau of Statistics said Tuesday. Prices for crude oil and other commodities collapsed, contributing to the decline in wholesale prices. Economists polled by The Wall Street Journal had expected the industrial-price gauge to drop by 2.5% year-over-year.

“There will be no V-shaped rebound in economic activity," said Liu Xuezhi, an analyst at Bank of Communications, following the data release. “The recovery from the Covid-19 will be slow."

Deflationary factory-gate prices are likely to persist, Mr. Liu added, pointing to still-worsening overseas demand as other parts of the world struggle to contain the pandemic and oil prices continue to fluctuate.

Many economists believe wholesale prices will notch a further decline in May, though rebounding domestic demand could support a gradual recovery through the end of the year.

For now, the downward pressure is a worrying omen for Chinese factories, whose profits fell by 36.7% in the first three months of the year compared with a year earlier, according to official statistics. The outlook for industrial profits is equally grim, given still-cool demand for Chinese exports.

Ravaged by the pandemic, China’s economy in the first three months of 2020 suffered its first contraction in more than four decades. The closely watched recovery in commercial activity, following a government push to restart businesses and boost consumption, has so far lagged behind expectations.

Economists are now debating whether Beijing will forgo announcing a growth target for the year when it holds its annual legislative meeting later this month.

China had originally planned by the end of this year to double the overall size of the economy from a decade earlier—a target that economists say requires at least 5.5% growth this year. But that target seems out of reach for an economy that shrank 6.8% in the first quarter.

Chinese Premier Li Keqiang was quoted by state media as saying on Monday that the government will work to meet major economic and social targets this year—vague wording that has suggested to some experts that the senior leadership in Beijing is looking to hedge its earlier ambitions in light of the pandemic.

Last month, the Chinese Communist Party’s policy-making Politburo dropped mention of its pledge of meeting major economic targets for the year.

Separately on Tuesday, China reported a larger-than-expected easing in consumer inflation for April as pork prices moderated and demand continued to remain lackluster, despite the government’s supporting measures.

The consumer-price index rose 3.3% from a year earlier, retreating from a 4.3% on-year increase in March and lower than the 3.6% increase expected by economists.

Food prices rose 14.8% on year in April, easing from an 18.3% increase in March. Pork-price inflation, which lifted China’s headline consumer inflation reading over the past year, eased to 96.9% in April, compared with a 116.4% pace in March, because of an increase in pork supply.

Prices of other staple meats, including beef, mutton and poultry, also moderated their increase last month, while prices for eggs, vegetables and fruit fell.

China’s nonfood prices increased 0.4%, compared with a 0.7% increase in March, as prices for transportation, clothing and housing fell from a year earlier.

The moderating inflation picture is expected to give China’s central bank more room to stimulate the economy without worries of overheating prices.

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