China's first quarter GDP down 6.8% on COVID-19; oil demand drops 12%

Singapore — The COVID-19 pandemic led China's gross domestic product to plunge 6.8% year on year in the first quarter, with a stronger hit on the country's oil demand that recorded about 12% decline.

The National Bureau of Statistics, or NBS, on Friday released a set of economic indicators that showed the deepest year-on-year quarterly reduction since the reform era began in the late 1970s.

It was China's first GDP decline in 40 years, compared with a 6% year-on-year increase in Q1 2019, and a 9.1% growth in Q2 2003 during the time of the SARS pandemic.

Kang Wu, S&P Global Platts Analytics head of Asia, said the COVID-19 pandemic led a wider decline in China's oil demand than its GDP as strict travel restrictions amid the lockdown drastically hit demand for transportation fuels like gasoline, gasoil, jet fuel and bunker.

"Normally, China's historical data suggest that the country's oil demand growth is roughly 75% of the growth of GDP. For instance, China's oil demand would gain 4.5% when GDP grows by 6%. But 2020 is different with a heavier reduction in oil demand than GDP," said Wu.

Platts Analytics estimated China's total oil demand slumping 12% year on year in Q1, with declines of 21.3% for gasoline, 10.5% for gasoil and 34.5% for kerosene/jet fuel.

Recovery

Meanwhile, a few key Q1 economic indicators, such as fixed-asset investment, industry production and transportation index, suggested economic activities improved in March from January-February, slightly helping a gasoil demand recovery.

Fixed-asset investment declined 16.1% year on year in Q1, with the reduction narrowing 8.4 percentage points from January-February, NBS said.

Industry production fell 1.1% year on year in March, 12.4 percentage points less than the decline in January-February.

Transportation index stood at 59.3% in March which also was relatively higher, NBS said.

Moreover, the value of online shopping for physical goods also increase 5.9% year on year at Yuan 1,853 billion ($261.75 billion) in Q1, up 2.9 percentage points from January-February.

More online shopping suggests increase in gasoil consumption for goods delivery, a Beijing-based analyst said.

Looking forward, Platts Analytics expects the decline of China's oil demand to ease to 7.2% year on year in Q2. For 2020, it estimated the country's oil demand at 14.41 million b/d, down 2% year on year.

S&P Global Ratings forecast China's GDP to grow 2.9% in 2020, assuming year-on-year growth rates turn positive in the third quarter at about 8%, and peak well into double-digits in the first quarter of next year.

The International Monetary Fund forecast China's GDP growth at 1.2% in 2020, contrasted with 6.1% in 2019, and rebounding to 9.2% in 2021.

Like S&P Global Platts, S&P Global Ratings is a division of S&P Global Inc.