What's going on?

Data out on Friday showed China�s normally imposing economy shrank by 6.8% in the first quarter versus the same time last year � its first decline since records began.

What does this mean?

Economists predicted China�s economy would shrink, sure, but not by as much as it did. Turns out consumers were slow to splash their cash when some businesses reopened in March: retail sales, for instance, were down 16% last quarter versus a year ago. Still, it wasn�t all bad news: the country�s industrial production shrank by a better-than-expected 1% as its factories sprang back into action, and its unemployment rate in March fell from February�s record high.

Why should I care?

For markets: Life�s little luxuries.

Chinese consumers typically account for a third of the world�s luxury purchases, so the country�s return to business � slow though it is � bodes well for the world�s biggest luxury conglomerate, LVMH (tweet this). The company said as much late last week, revealing that sales of some of its brands were up by more than 50% in late March and early April. That influx of luxury shoppers is a rising tide which is lifting several boats: not only did LVMH�s shares climb on Friday, those of Gucci-owner Kering and cosmetics brand L�Oreal did too � with the latter saying that despite falling global sales last quarter, China�s recovery will mean this quarter�s are stronger.

The bigger picture: Just add government support.

There are limits on how quickly China�s economy can grow in the next few months given that international buyers of its wares � including major customers in the US and Europe � are still effectively closed for business. It�s probably no bad thing, then, that the Chinese government has said it�ll cut interest rates further in order to encourage domestic spending, as well as help banks lend more to companies that are getting less international business than they�re used to.