Coronavirus: China factory profit slump bodes ill for US and Europe
Profits at China’s factories crashed in January and February as coronavirus ravaged the economy, in a sign of the heavy toll the pandemic is set to take on companies around the world.
Chinese industrial firms’ profits plunged 38.8 per cent year on year to 410.7bn yuan (£47.63bn). It was the steepest fall since records began in 2010.
Coronavirus emerged in the Wuhan province of China in December and struck just as businesses wound down for Lunar New Year celebrations.
As the severity of the virus became obvious, factories and offices stayed close while whole provinces were put on lockdown. The moves caused both supply and demand to slump in a huge economic shock.
Freya Beamish, chief Asia economist at consultancy Pantheon Macroeconomics, called the figures “horrendous”.
The car, electricals and chemicals sub-sectors suffered some of the worst profit falls. Profit plummeted 87 per cent in the electronics sub-sector.
Beamish said: “The data also suggest that the hit to bottom lines came despite a sharp pullback in operating costs.”
“Overall, these data should leave the authorities in no doubt that they need to do more to stem the bleeding.”
US and Europe next in line for a slump
The figures are a worrying sign for countries such as the US and Italy. The US now has more cases than China, while Italy has suffered more deaths.
Coronavirus precautions in the US and Europe are expected to cause deep recessions.
A survey from statistics institute ISTAT today showed business morale in Italy plunged in March as coronavirus shut down the Eurozone’s third-biggest economy.
The Economist Intelligence Unit (EIU) today predicted Italian GDP will fall seven per cent this year. Goldman Sachs has said it could be as bad as an 11 per cent drop.
Agathe Demarais, global forecasting director at the Economist Intelligence Unit, said: “The global economic picture is looking bleak, with recessions in almost every developed economy across the world.”
She said uncertainty remains very high, as it is “hard to see an exit strategy from the lockdowns”.
US unemployment skyrocketed last week, data showed yesterday, heralding a recession in the world’s largest economy. Claims hit 3.3m in the week to 22 March, by far the highest on record.
Bank of America economist said the jobless figures reflected a “sudden plunge into a recession”.