Chinese factory activity rose for the third consecutive month in March, while the construction and service sectors grew at the fastest pace in 12 years, indicating that the country’s economic recovery is firming up, revealed official data on March 31.
According to experts, the data implies decent GDP growth in the first quarter of the year, which could accelerate further in the second. However, they also underlined the need to maintain macroeconomic policy support given the persistent pressures on employment and the downside risks to external demand.
Meanwhile, the National Bureau of Statistics (NBS) announced on March 31 that the official Purchasing Managers’ Index for China’s manufacturing sector, a key indicator of the sector’s health, came in at 51.9. in March, down from 52.6 in February, but marking the second highest level in nearly two years.
Notably, the SNB noted, the figure remained above the 50-point mark that separates growth from contraction for the third consecutive month, a sign of a continued recovery in factory activity. as disruptions related to the COVID-19 outbreak fade.
At the same time, activity in the construction and services sectors grew at its fastest pace in 12 years, with the non-manufacturing PMI (or purchasing managers’ index) for March coming in at 58.2, against 56.3 a month earlier and reaching its highest level since May 2011.
“The economy has continued to stabilize and recover,” noted Zhao Qinghe, senior statistician of the NBS, adding that manufacturing output and orders have picked up further while the revival of consumer spending and business travel has boosted relevant segments of the service industry.
While PMI figures point to a steady overall recovery, Wen Bin, chief economist of China Minsheng Bank, meanwhile predicted that China’s economic growth in the first quarter could come in at around 4, 5% year-over-year and reach 9% in the second quarter, compared to growth of 2.9% in the fourth quarter of 2022.
His estimate echoes the latest forecast from the World Bank, which in its latest economic update on East Asia and the Pacific raised China’s economic growth projection to 5.1% this year, compared to 4.3% in January.
Experts believe China’s consumption-led economic recovery should keep PMI numbers mostly in expansionary territory in the coming months, with non-manufacturing activity likely to continue to outperform manufacturing.
For David Chao, global market strategist for Invesco Asia Pacific, excluding Japan, China’s consumption rebound will continue steadily in the future as consumers gradually spend the large amount of deposits they accumulated during the pandemic, paving the way for China’s economic recovery.
Nevertheless, the SNB also pointed out that the manufacturing and non-manufacturing employment sub-index returned to contraction territory in March, indicating that the labor market could remain soft. In addition, manufacturing activity by small and medium-sized businesses moderated at a faster pace than that of large businesses in March.
According to BNS’s Zhao, “companies still face significant problems such as insufficient market demand, tight cash flow and high operating costs.”
Macroeconomic policy should continue to focus on stabilizing growth in the second quarter, with monetary policy still having room to provide targeted support, said Zheng Houcheng, director of the Yingda Securities Research Institute.
As external demand is likely to weaken as global growth falters, experts have particularly called for policy efforts to boost domestic demand and ease any potential difficulties exporters may encounter.
Meanwhile, the State Administration of Foreign Exchange announced on March 31 that China’s total imports and exports of goods and services amounted to 3.32 trillion yuan ($482.9 billion) in February, up 10% year over year.
Finally, the SNB data showed, however, signs that exports could deteriorate emerged as the sub-measure of new export orders for manufacturers fell from 52.4 in February to 50.4 in March.