Weakening March Factory Activity in China Raises Concerns About the Nation’s Economic Growth
China’s vast manufacturing industry, which represents a third of the world’s second-largest economy in terms of value, slowed down in March due to poor export orders. This has hindered the country’s economic recovery from COVID-19 policies.
The manufacturing purchasing managers’ index (PMI) by Caixin/S&P Global decreased to 50.0 in March, following a reading of 51.6 in February. The February reading marked the first monthly increase in activity in seven months.
The survey findings, which were made public on Monday, were much lower than the anticipated 51.7 from a Reuters poll. The results also mirrored the sluggish growth seen in an official PMI report that was published on Friday. The 50-point mark on the index separates growth from contraction every month.
China’s economy started to bounce back in the first two months of the year, driven by an increase in services, as strict COVID-19 policies that had previously disrupted trade and suppressed local demand were lifted after three years.
However, the economy’s near-term prospects have been hampered by a lack of a robust manufacturing recovery. ING Group has lowered its first-quarter gross domestic product (GDP) forecast to 3.8% annual growth from 4.5% due to weaker external demand.
In a research note, the Dutch bank stated that the recovery is not seamless, and they observed that external demand is still vulnerable, which could pose a threat to domestic demand.
Beijing has established a conservative objective of around 5% economic expansion this year, following a 3% growth in the previous year, which was one of the weakest performances in the last 50 years.
On Monday, the state-owned financial newspaper The Securities Times reported that China’s GDP probably grew about 4.0% in the first quarter compared to the same period last year. This growth was likely driven by increased consumption and sustained high levels of growth in infrastructure investment.
Nie Wen, an economist at investment firm Hwabao Trust based in Shanghai, said that in the coming months, there may be a weak external demand and a revival in domestic demand.
However, Nie expects that the GDP figures will mostly reflect the robust performance of manufacturing and services seen earlier this year. As a result, he revised his earlier forecast of 3.5% annual growth for the first quarter to 3.7%.
The Caixin survey indicated that the new export orders sub-index dropped to 49.0 in March, following a brief surge in February, indicating a continuation of weak global demand.
According to a note by Capital Economics, the small and brief increase in the manufacturing purchasing managers’ index (PMI) in the first quarter indicates that the industrial sector has not received much benefit from the easing of COVID restrictions.
According to the latest official data, the services sector in China has been growing rapidly and has reached its highest level of growth in almost 12 years. On Thursday, the Caixin/S&P Global services purchasing managers’ index (PMI) will be released, which mainly focuses on small and medium-sized private businesses.
Recently, the new premier of China, Li Qiang, pledged to support investments and consumption. Furthermore, the central bank had decreased the reserve requirement ratio last month. A research note from Citi suggests that with the new economic team taking over, there could be more pro-business policies in the future, even though the expectation for stimulus is low.