According to a business survey, China’s factory activity expanded at the slowest pace in nine months in February, as poor overseas demand and COVID outbreaks weighed on production, placing pressure on the country’s labor market. The manufacturing slowdown highlights the fragility of China’s ongoing economic recovery, even though domestic COVID-19 cases have been eradicated and analysts expect a significant rebound in full-year growth.
In February, during the Lunar New Year holidays, when many workers returned to their hometowns, , but there were even fewer trips this year due to COVID-19 fears. Last month, the Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9, its lowest level since May.
The index was forecasted to remain unchanged from January’s reading of 51.5 by analysts polled by Reuters. Every month, the 50-mark distinguished between growth and contraction. Overall production was also being weighed down by overseas demand. In comments released alongside the results, Wang Zhe, senior economist at Caixin Insight Group, said, “Surveyed manufacturers highlighted fallout from domestic flare-ups of Covid-19 in the winter as well as the overseas pandemic.”
A sub-index for production fell to 51.9, the slowest rate of growth since April of last year, while a sub-index for new orders fell to 51.0, the lowest level since May. For the second month in a row, export orders dropped. For the third month in a row, factories laid off employees at a faster pace, according to Wang, who noted that companies were not in a rush to fill vacancies. An optimism index for the coming year, on the other hand, increased to 63.0, the highest level since October last year. Prices of inputs and outputs continued to grow, but at a slower rate.
At this stage, policymakers’ key challenge will be to sustain the post-COVID recovery while keeping an eye on inflation, Wang added. According to HSBC analysts, China’s economy will expand at an annual pace of 8.5 percent this year, leading to the global recovery from the pandemic.
