(Yicai Global) April 17 -- China's economic output fell 6.8 percent in the first quarter from a year earlier as the coronavirus epidemic paralyzed the economy, temporarily bringing to a halt decades of record growth.

The contraction was the first quarterly slump since gross domestic product started being used as an economic indicator in the early 1990s and stood in stark contrast to the 6 percent growth recorded in the final quarter of 2019.

The fallout from Covid-19 will not affect China’s long-term growth potential as the country’s economic fundamentals have not changed, Mao Shengyong, spokesperson for the National Bureau of Statistics, said at a press conference today. They can support medium and long-term economic growth, he added.

Second-quarter results will be better as more businesses reopen and more supporting policies come into play. The second half of the year will see improved figures if the global pandemic comes under control, Mao said.

China’s GDP is expected to return to a 3 percent growth rate in this quarter, Chen Weidong, head of the Bank of China Research Institute, told Yicai Global. Microeconomic policy should prioritize stabilizing employment, helping small and medium-sized companies as well as securing people’s livelihoods, he added.

First quarter industrial, consumption and investment figures were all sharply down from the year before, but March’s decline was less steep indicating that the economy is recovering.

From a structural point of view, value-added industrial output improved greatly in March from the previous month, Liu Zhe, deputy dean of Wanbo New Economy Research Institute, told Yicai Global. This demonstrates that supply capacity is more or less back to normal. The decline in investment has narrowed, especially in the infrastructure and real estate sectors, reflecting the hedging effect of investment on the economic downturn.

Consumption is generally slower to recover than supply, Liu said, so it dropped steeply in the first quarter. In the future, demand side stresses will outweigh supply side difficulties. How to effectively boost spending through a package of economic relief policies will be the key to economic recovery, he added.

Value-added industrial output, which measures the activity of designated large enterprises with annual turnover of at least CNY20 million (USD2.8 million), fell by 8.4 percent year on year in the first quarter, according to the NBS. March figures were down 1.1 percent from the same period last year, while January and February saw a sharp 13.5 percentage point drop.

Fixed asset investment growth fell 16.1 percent year on year in the first quarter while growth in the first two months was down 24.5 percent from the same period last year.

China’s average retail sales of consumer goods was down 19 percent year on year in the first quarter and down 15.8 percent in March, an improvement on February’s 20.5 percent drop.

Editors: Dou Shicong, Kim Taylor