China's factories flatlining even before virus outbreak worsened

PMI falls to 50 in survey taken before contagion's extent is clear

A factory production line in Zhangjiakou in China's Hebei province. The first official indicator of the Chinese economy this year signalled that it was already slowing amid weak domestic demand, a crackdown on debt and the trade war with the United S
A factory production line in Zhangjiakou in China's Hebei province. The first official indicator of the Chinese economy this year signalled that it was already slowing amid weak domestic demand, a crackdown on debt and the trade war with the United States. PHOTO: AGENCE FRANCE-PRESSE

BEIJING • The first official indicator of the Chinese economy this year signalled that the nation's factories were flatlining even before the country shut down for the Chinese New Year holidays and the coronavirus outbreak worsened.

The manufacturing purchasing managers' index (PMI) dropped to 50 last month, according to data released by the National Bureau of Statistics (NBS) yesterday, matching the median estimate of economists.

The non-manufacturing gauge was 54.1, compared with 53.5 the previous month.

Due to the holiday, the surveys were conducted earlier last month than normal, before the extent of the outbreak, which originated in Wuhan, and the disruption to the economy were evident.

China's economy was already slowing amid weak domestic demand, a crackdown on debt and the trade war with the United States.

The outbreak of the novel coronavirus, which has killed hundreds and sickened thousands, is now hammering growth as businesses shut for at least another week and people across major cities avoid going out for fear of getting sick.

"We expect a big plunge of both manufacturing and service PMIs in February and March," said chief China economist Lu Ting at Nomura Holdings in Hong Kong. "The virus outbreak may further weaken domestic demand and thus render the upcoming policy easing less effective."

The worsening health crisis has seen numerous economists revise down their forecasts for growth. Many expect China's government and central bank will step in to cushion the blow.

The impact of the new coronavirus "has not been fully reflected in January PMI, and its influence on the economy shouldn't be underestimated", analyst Zhang Liqun at China Logistics Information Centre compiling the data with the NBS, wrote in a statement. "Efforts are needed to stabilise growth."

Gross domestic product growth will slow to 4 per cent year on year in the first quarter from a previously forecast 5.6 per cent, according to Mr Andrew Tilton, chief economist for Asia-Pacific at Goldman Sachs in Hong Kong.

Even with the assumption of a relatively quick rebound in the second and third quarters, that would lower full-year 2020 growth to 5.5 per cent, he said. "A more prolonged outbreak could lower full-year growth to 5 per cent or even below," Mr Tilton wrote in a note to clients dated yesterday.

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A version of this article appeared in the print edition of The Straits Times on February 01, 2020, with the headline China's factories flatlining even before virus outbreak worsened. Subscribe