The first official data has been published outlining the economic hit to China from COVID-19, and it’s considerably worse than many were expecting.

But even more alarming for Chinese policymakers: with COVID-19 sweeping the world and shutting down economies one after the other, the economic pain might just be getting started.

Analysis

According to China’s National Bureau of Statistics, industrial output plunged 13.5% over January and February – the deepest contraction on record. Over the same period, retail sales were down 20.5% and fixed asset investment 24.5%.

The red ink doesn’t stop there: construction fell some 45% over the first two months of the year, as did home sales (40%), and commercial and residential property investment (16.3%).

Urban unemployment – a metric that is closely monitored by a CCP wary of potential sources of social unrest – also spiked to 6.2% in February, a full one percentage point higher than two months previous. That’s the equivalent of approximately five million people losing their jobs in just two months.

Taken together the data suggests an eye-watering 13% contraction in GDP over the first two months of the year, according to calculations by Capital Economics.

There are two immediate takeaways from the data: 1) it’s considerably worse than most analysts were predicting; and 2) it’s also considerably worse than the Chinese authorities have ever been in the habit of releasing to the public.

Just how much worse is it than expected? Consider that S&P Global Ratings was predicting a 5.0% annual growth rate for China as of February 6 – a number that, even back then, erred too heavily on the side of optimism. According to a chief economist at the time: “Most of the economic impact of coronavirus will be felt in the first quarter, and China’s recovery will be firmly in place by the third quarter of this year.”

In other words, the widely-held expectation was that China would experience a swift, V-shaped recovery.