The official purchasing managers’ index (PMI) for the manufacturing sector fell to 47.4 in April, from 49.5 in March, for a second consecutive month of contraction, the National Bureau of Statistics (NBS) said on Saturday. This is the lowest level since February 2020.
A Archyde.com poll had forecast the PMI to fall to 48, well below the 50 point mark that separates contraction from growth on a monthly basis.
The PMI reading, combined with an even sharper contraction in services, offered early hints of the performance of an economy ravaged by growing COVID restrictions, such as the extended closure of the Shanghai Mall.
Industrial activity contracted at its fastest pace in 26 months, according to a Caixin survey of private companies, with the index of new export orders plunging to its lowest level since June 2020, suggesting a weakening economy. one of the few bright spots in the economy.
In a statement, the statistics office linked the COVID disruptions to a significant drop in demand and supply in the manufacturing sector.
“Some companies are facing difficulties in sourcing raw materials and key components, selling finished products and increasing inventory,” the NBS said. Things seem to be improving with the control of the pandemic and the adoption of supportive policies.
Dozens of major Chinese cities are said to be in full or partial lockdown, thanks to a strict COVID policy.
With hundreds of millions stuck at home, consumption is taking a hit, prompting more analysts to cut growth forecasts for the world’s second largest economy.
The production sub-index slipped to 44.4 in April from 49.5 the previous month, while new orders fell to 42.6 from 48.8 in March, according to the NBS.
A GROWING RISK OF RECESSION?
Electric car maker Tesla has reported a temporary drop in production due to Chinese restrictions, after saying last week that the shutdowns had cost about a month’s worth of construction volume at its Shanghai factory.
Some analysts are even warning of growing recession risks, saying policymakers need to provide more stimulus to meet the official growth target of around 5.5% for 2022.
In addition to COVID restrictions and heightened risks from the war in Ukraine, continued weakness in consumption and a prolonged slowdown in the housing market are also weighing on growth, analysts said.
Authorities have pledged more aid to bolster confidence and avert further job losses in a politically sensitive year.
China will step up its political support, the Politburo, a top decision-making body of the ruling Communist Party, said, giving the battered stock markets some courage.
However, analysts say their task will become more difficult unless China eases its zero COVID policy, which it has shown little sign of doing.
“While these (official) messages are positive, the key lies in the specific policies and their implementation,” said Zhiwei Zhang, president and chief economist of Pinpoint Asset Management in a client brief Friday.
Moreover, analysts say traditional policy tools, such as interest rate cuts and larger cash injections, could have limited impact if lockdowns cripple activity.
President Xi Jinping chaired a senior leadership meeting this week that announced a big infrastructure push to boost demand, reinforcing Beijing’s preference for big projects to spur growth.
But such plans take time, and Beijing is seen as wary of another massive stimulus program such as its 4 trillion yuan ($605.82 billion) outlay during the global financial crisis in 2008. and 2009 which created a mountain of debt.
A sharp shift to more aggressive easing could also trigger more capital outflows, adding to the headaches of policymakers.
The Chinese yuan fell more than 4% in April, its biggest monthly decline in 28 years, while stock markets were the second worst performers this year, after sanctions-hit Russia. [CNY/]
China’s gross domestic product (GDP) rose 4.8% in the first quarter from a year earlier, beating analysts’ expectations of a 4.4% gain, but March data weakened. strongly weakened, with a contraction in retail sales and the highest unemployment rate since May 2020.
A sub-index of construction activity, a key economic driver that Beijing hopes will propel growth this year, stood at 52.7 in April, down from 58.1 in March.
Construction equipment maker Caterpillar Inc warned on Thursday that demand for excavators in China, one of its biggest markets, could slip below pre-pandemic levels in 2022. The lockdowns have also hurt excavator sales. companies such as General Electric Co and 3M Co.
A banker at a top 10 Chinese bank said she had seen the greatest impact among small and medium-sized enterprises.
“Small borrowers, especially those in the manufacturing sector, are really hurting this time around because they don’t have any cash reserves,” she said.