BENGALURU (Reuters) - The Chinese economy will slowly recover from its first quarterly contraction since current records began, economists predicted in a Reuters poll, but they warned of a likely recession if conditions worsen again from the global coronavirus pandemic.

A crane is seen at a construction site in Beijing, following an outbreak of the novel coronavirus disease (COVID-19), China April 17, 2020. REUTERS/Carlos Garcia Rawlins

The poll found China’s gross domestic product (GDP) was expected to grow just 1.3% in the current quarter on a year earlier, after contracting 6.8% in January-March.

Reflecting the heightened uncertainty, forecasts for second quarter GDP growth ranged from -5.0% to +5.0%, with economists based in mainland China providing all of the more optimistic predictions. The poll of more than 40 economists in mainland China and beyond was taken April 20-22.

At a time when countries around the world are considering how to ease their lockdowns of businesses and households, China earlier this month lifted its lockdown of Wuhan, where the outbreak began, and announced it would fully restore rail, flight and freight operations by the end of April.

The Chinese authorities have also allowed factories to resume production and reopen businesses, leading to a recovery in manufacturing activity CNPMIB=ECI in March for the first time this year in the world's second-largest economy.

But while China’s economy is starting up again much earlier than major economies in Europe and the United States, which are still struggling with high reported infections and deaths from COVID-19, the outlook has deteriorated significantly with successive downgrades.

“Although there is resumption of work, that doesn’t mean that the economy is going back to the pre-COVID-19 levels, it is way, way behind that,” said Iris Pang, Greater China economist at ING in Hong Kong.

“As long as strict social distancing measures are in place, we think China will struggle to recover quickly. I also worry there will be a second round of infection from the western part of the world because they are now relaxing the lockdown before their cases subside. That’s why I forecast a recession.”

The contraction just recently reported for Q1 was only a few tenths of a percentage point lower than the median 6.5% shrinkage forecast in a Reuters poll published on April 14.

Under a worst-case scenario, Q2 GDP is forecast to contract 1.0%, according to the median view, which would mean two consecutive quarters of contraction, the textbook definition of a recession used by most economists.

In 2020 as a whole, China’s economy is forecast to grow 1.8%, the weakest annual performance since 1976, the final year of Mao Zedong’s Cultural Revolution, and less than one-third the 6.1% rate clocked in 2019.

That is a sharp downgrade from a poll published last week, where 2020 growth was forecast at 2.5%. In early March, economists were expecting 5.4%, showing just how rapidly the outlook has wilted.

“Overall, GDP probably will contract this year, though the authorities likely will print a positive number. We are unlikely ever to go back to the days of wrangling over ‘6.1%’ or ‘6.2%’,” said Freya Beamish, London-based chief Asia economist at Pantheon Macroeconomics, who along with seven other respondents predicts a recession.

“The recovery in consumption looks a lot less secure, given efforts to stem a second virus wave and the massive salary and job cuts in Q1. Firms are not willing to produce and flood inventory in Q2 while the demand in the rest of the world collapses.”

Under a worst-case scenario, the economy will grow only 0.8% according to the median forecast from responses to an additional question.

But economists still generally expect China’s economy to pick up strongly later this year, growing 5.3% in the third quarter and 6.0% in the final quarter of this year, only a touch slower than predicted a few weeks ago.

Growth is expected to roar back to 15.8% in the first quarter of 2021, owing in part to the very weak base just reported for Q1 this year.

Indeed there are several economists who are optimistic about how 2020 will look for China’s economy - striking given forecasts for the U.S. economy show an overall contraction of 4.1%. [ECILT/US]

“My 3% growth forecast is a bit bullish and it is based on the assumption that global demand will recover. However, if that does not quickly return to pre-crisis strength, there will be a recession for sure,” said Bingnan Ye, Beijing-based senior macroeconomic analyst at Bank of China International.

The People’s Bank of China has cut its one-year loan prime rate, the benchmark lending gauge it introduced in August 2019, twice by a total of 30 basis points - by 10 bps on Feb. 20 and 20 bps on April 20 - from 4.15% prevailing before the health crisis.

The central bank was expected to trim that rate by another 25 basis points to 3.6% by the end of the year.

(For other stories from the Reuters global economic poll)