BEIJING - China’s factory and services activity contracted further in November as a record number of Covid-19 cases prompted widespread movement curbs, further damaging the economy’s fragile outlook.
The official manufacturing purchasing managers’ index (PMI) fell to 48 in November, the National Bureau of Statistics (NBS) said on Wednesday, the lowest reading since April and worse than an estimate of 49 in a Bloomberg survey of economists.
The non-manufacturing index, which measures activity in the construction and service sectors, declined to 46.7 from 48.7 in October, also the lowest reading in seven months.
A reading below 50 indicates contraction, while anything above suggests expansion.
China’s economy is suffering increasing damage and residents have taken to the streets to protest against tighter Covid-19 controls in several major cities recently. Economists expect growth to slow to around 3 per cent in 2022, putting pressure on officials to step up stimulus to spur the recovery in 2023.
“Policymakers are working at full steam to create strong impetus for growth with stimulus packages,” said Mr Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle. He sees China’s economy as likely to return to a potential growth rate of more than 5 per cent “no earlier” than the second quarter of 2023, assuming less disruption from Covid-19 outbreaks and curbs.
Economic activity will most likely continue to weaken in December and the first quarter of 2023, according to Mr Zhang Zhiwei, chief economist at Pinpoint Asset Management, adding that a reopening-fuelled rebound seems set for the second half of 2023.
“At this early stage of reopening, more cities face rising number of Covid-19 patients,” he said. “These cities have to impose restrictions to ‘flatten the curve’. The economic cost is inevitable.”
As Covid-19 outbreaks spread, more companies are seeing infections rise among their employees. About 53 per cent of Chinese firms reported a Covid-19 case in their workforce in November, according to a survey of more than 2,400 companies across the nation by China Beige Book International. That was the highest percentage in the data going back to January 2021.
About a quarter of China’s total gross domestic product (GDP) is affected by lockdowns, according to a recent estimate from Nomura Holdings. That was higher than the firm’s previous peak recording of 21 per cent in April, when the whole of Shanghai was shut down to curb Covid-19 cases.
While the government has taken steps to help the economy recently – including lowering the amount of cash banks must hold in reserves and offering financing support to property developers – the policies are not likely to be enough to shore up household and business confidence.
Bloomberg Economics downgraded its GDP growth forecast for China in 2022 to 3 per cent from 3.5 per cent, and trimmed 2023’s projection to 5.1 per cent from 5.7 per cent.
The International Monetary Fund (IMF), meanwhile, said on Tuesday that it may have to trim its forecast for China’s growth because of Covid-19 restrictions and the property sector turmoil. The IMF currently sees China’s GDP expanding 3.2 per cent in 2022 and 4.4 per cent in 2023.
Several economists say the central bank could provide more stimulus in the coming months as the global outlook makes it somewhat more favourable for China to ease monetary policy. BLOOMBERG
