Activity in China’s manufacturing and service sectors simultaneously contracted in March for the first time since the country’s Covid-19 outbreak peaked in 2020, heightening the need for policy intervention to stabilize the economy.
The official Purchasing Managers Index (PMI) for the manufacturing sector fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said on Thursday, while the non-manufacturing PMI fell to 48.4 from 51.6 in February. .
The last time both PMIs were simultaneously below the 50 mark that separates contraction from growth was in February 2020, as authorities rushed to stem the spread of the coronavirus, first detected in China’s central city of Wuhan.
The world’s second-largest economy accelerated in January-February, with some key indicators beating expectations, but it now risks slowing down sharply as authorities restrict production and mobility in Covid-hit cities, including Shanghai and Shenzhen.
“Recently, epidemic clusters have occurred in many places in China, and combined with a significant increase in global geopolitical instability, the production and activities of Chinese enterprises have been affected,” said Zhao Qinghe, statistician, director of BNS.
Shanghai’s Covid-19 lockdown has disrupted auto production in recent days as two major suppliers have joined Tesla (TSLA) in closing factories to comply with coronavirus spread control measures.
“PMI weakened as Omicron outbreaks in many Chinese cities led to industrial production shutdowns and disruptions,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“Since the quarantine in Shanghai was only introduced at the end of March, economic activity is likely to slow down even more in April. »
The manufacturing sub-index fell below 50 points for the first time since October to 49.5, indicating contraction. The new orders indicator was also in negative territory.
“Due to epidemics, some enterprises in some regions have temporarily reduced or stopped production, which also affected the normal production and operation of upstream and processing enterprises,” Zhao said.
Some companies have also faced cancellations or reductions in overseas orders due to geopolitical uncertainties, Zhao said.
Weakening production and demand accelerated job cuts in factories, with the employment sub-index falling to 48.6 in March, the lowest level since February 2021.
“The PMIs likely underestimate the hit to last month’s activity,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The service index remained above the low of 45.2 hit in August last year during the delta wave. This is probably due to the fact that the survey was carried out before the strongest unrest.
To cushion the impact of the new Covid-19-related restrictions, authorities have unveiled business support measures, including rent exemptions for some small service businesses.
On Wednesday, the government announced that it would take measures to stabilize the economy as soon as possible amid increased pressure.
The central bank, which kept its benchmark interest rate on business and household loans unchanged in March, is expected to cut rates and lower reserve requirements for banks as downward economic pressure builds, analysts said.
China’s official composite PMI, which combines manufacturing and services, stood at 48.8 in March from 51.2 in February.
The composite PMI was at its second-lowest on record since February 2020, when the index fell to 28.9 due to the initial Covid-19 outbreak.
“This suggests that the economy is contracting at its fastest pace since the peak of the initial Covid-19 outbreak in February 2020,” Evans-Pritchard said.