China’s manufacturing activity falls further as a result of the country’s energy woes.
This is the second month in a row that China’s PMI has fallen below the 50-point threshold that separates growth from contraction.
Factory activity in China fell more than expected in October, according to official data released on Sunday, indicating that the industrial sector is still struggling as it deals with a lack of power and rising raw material costs.
According to the National Bureau of Statistics, the key Purchasing Managers’ Index (PMI) – a measure of manufacturing activity in the world’s second-largest economy – fell to 49.2 this month, down from 49.6 in September (NBS).
This is the second month in a row that China’s PMI has fallen below the 50-point threshold that separates growth from contraction.
According to a Bloomberg poll of economists, the reading should have been 49.7, which would have been a slight improvement.
Although the country’s PMI fell when Covid-19, which first appeared in the central city of Wuhan, halted most business activity, life has mostly returned to normal as strict measures brought the outbreak under control.
However, the NBS stated on Sunday that “the manufacturing PMI fell in October due to factors such as still-tight power supply and high costs of some raw materials.”
According to senior statistician Zhao Qinghe, both the production and new-order indexes were in contraction, indicating weakening supply and demand.
Meanwhile, the price index continued to rise, reflecting higher raw material purchase prices such as petroleum and coal, as well as sales costs.
According to Pinpoint Asset Management chief economist Zhiwei Zhang, the production index has fallen to among its lowest levels since 2005, signalling stagflation.
“A worrying sign is the passthrough of inflation from input prices,” he said, adding that this could exacerbate consumer inflation.
OCBC Bank’s Tommy Xie told AFP that smaller businesses appear to be “paying the price for the power shortages” implying that more policy support is needed.
Non-manufacturing activity fell in October as well, according to official data, as authorities noted that “the recovery of the service industry has slowed.”
China’s non-manufacturing PMI fell to 52.4 in October from 53.2 in September.
While the reading remains positive, aided by holiday activity in early October, the NBS said the threat of local outbreaks remained a cloud over consumer sentiment.
“The real situation could be worse,” said Lu Ting, chief China economist at Nomura, noting that surveys may not accurately reflect the impact of escalating anti-virus measures in late October.
“We expect another round of growth forecast cuts,” Lu added.