The outbreak of the coronavirus and China’s efforts to stop the spread mean the economy will grow slower this quarter than first thought, with the median forecast now for growth to be the slowest in 30 years.
China’s gross domestic product will grow four per cent in the first quarter, according to the median of 18 forecasts since Jan. 31. That’s down from 5.9 per cent in the last survey on January 22 and the lowest level since 1990. Full-year economic growth is forecast to be about 5.5 per cent, also down from 5.9 per cent last month.
China’s provinces are facing the economic fallout from the coronavirus with depleted ammunition, given they were already bracing for a deterioration in public finances before the outbreak hit.
More than half of mainland provinces expect slower expansion of revenue in 2020 than last year’s average local income growth, according to their budgets published before the disease outbreak became widespread in January. Hubei, the epicentre, was already expecting income to fall.
That stretches the government’s efforts to make fiscal policy more supportive of the economy in the aftermath of the outbreak, and means more bond sales and borrowing are likely. Government at all levels is re-thinking plans for this year as factories and businesses across the country remain shut, spelling immediate trouble for tax receipts.
China hasn’t exceeded a national deficit ratio of three per cent of gross domestic product since at least 2009. The official target would normally be announced after the National People’s Congress, China’s legislature, in March. On Sunday the government pledged to roll out more effective stimulus, with Finance Minister Liu Kun writing in a Communist Party journal that it will work to reduce corporate taxes and cut unnecessary government expenses.
Among the 28 provinces that have published their 2020 budgets, worsening balances are evident across the board. Mega-cities like Beijing and Shanghai expect their revenue to be “roughly the same” as in 2019, and regional economic powerhouses such as Shandong and Chongqing expect growth of about one per cent. Anhui, in central China, forecasts a slump of 17.5 per cent while Hubei originally thought its income would drop by about 13 per cent.
The national budget for this year hasn’t been announced yet, but revenue last year was lower than initially forecast.
To what extent tax income will slow on the damage from the virus is difficult to tell. Although the SARS outbreak in 2002-2003 had much smaller economic impact than this one, government revenue took an immediate hit in the first quarter of 2003 as the virus raged, and kept falling in the rest of the year.