China’s economy slows further as manufacturing contracts for first time in two and a half years

Purchasing managers’ index falls to 49.4 in December putting more pressure on China to make concessions to ease the trade war with the United States

Drop in manufacturing activity partly offset by stronger service sector

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The decline was largely unexpected, with the median forecast in a Bloomberg survey predicting an unchanged reading of 50.2. Photos: Reuters

Published: 10:44am, 31 Dec 2018Updated: 11:29pm, 31 Dec 2018

China’s economy slowed further in December, with data released on Monday showing manufacturing sector activity contracted for the first time in two and a half years.

The purchasing managers’ index (PMI) fell to 49.4 from 50.0 in November, with December falling below the watershed point between expansion and contraction in the sector for the first time since dropping to 49.9 in July 2016.

It was also the lowest since hitting 49.0 in February 2016.

"The falling PMI points to further pressure on the economy in the fourth quarter and the first quarter of next year. We expect the future policy will focus more on counter-cyclical adjustment to stablise demand," said Li Chao, chief macro analyst from Huatai Securities.

The decline was largely unexpected, with the median forecast in a Bloomberg survey predicting an unchanged reading.

The decline in manufacturing activity was led by a contraction in export orders for the seventh straight month to the lowest level since November 2015.

The drop in manufacturing activity was led by a contraction in export orders for the seventh straight month to the lowest level since November 2015.

Iris Pang, Greater China economist from ING Wholesale banking, noted that it is not too surprising that new export orders contracted to 46.6 in December under the lingering trade war, since it had remained below 50 since June.