China’s manufacturing shrank again in January, as fears of further economic slowdown mount
- Official purchasing managers’ index (PMI) rose to 49.5 from 49.4 in December as factory activity in China contracted for a second consecutive month
- Non-manufacturing PMI rose to 54.7 from 53.8 in January, well above analysts’ expectations of 53.8, according to Bloomberg poll
Factory activity in China contracted for a second consecutive month in January, as the trade war with the United States and a domestic slowdown continue to weigh on the world’s second largest economy.
The official purchasing managers’ index (PMI) rose to 49.5 this month from 49.4 in December. This was higher than the expectations of a group of analysts polled by Bloomberg, which had predicted that it would dip slightly to 49.38.
However, anything below 50 represents a contraction, meaning that for the second month in a row, one of the main engines of Chinese growth has acted as a drag on the economy.
The PMI is an indicator of economic health for manufacturing and service sectors. It provides information about current business conditions to company decision makers, analysts and purchasing managers.
However, other sectors of the economy showed some signs of improvement.
Non-manufacturing PMI rose to 54.7 from 53.8 in January, well above analysts’ expectations of 53.8, according to the Bloomberg poll.
This could be due to increased spend in sectors such as construction.
The contraction in production is likely to put a squeeze on employment, with manufacturing being a key source of jobs in many parts of China.
However the slight rebound could offer encouragement that the strain on factories will be less pronounced.
The figures come amid the most significant slowdown in China’s economic growth for a decade. In the fourth quarter of 2018, the economy grew by 6.4 per cent, the lowest rate since 2009, when the effects of the global financial crisis were being keenly felt.
On an annual basis, the economy grew by 6.6 per cent in 2018, the lowest growth rate since 1990.
The poor manufacturing data had been telegraphed by a succession of indicators which show that consumption is struggling in China and its target export markets. Production is a natural victim of slowing consumption cycles.
Car sales in China were down in 2018, dropping by 5.8 per cent to 22.35 million units in 2018. This marked the first contraction since 1992, according to data from the China Passenger Car Association.
Smartphone sales in China, meanwhile, dropped by dropped 8 per cent in the third quarter of 2018 compared to the same period a year earlier, according to Counterpoint Research.
January’s trade data will be released on February 14, but the most recent data – for December 2018, were much worse than expected, underscoring the rapid weakening of the Chinese economy.
Total exports fell to US$221.25 billion, down 1.4 per cent from November and 4.4 per cent from the same month in 2017, according to data from China’s General Administration of Customs.
“We continue to expect growth to worsen in the first half of 2019 before stabilising in the second half,” Nomura said in a note to accompany the trade data on January 14.
