China’s factory activity is likely to have shrunk at a slower pace in November, as supply snags and power cuts eased, a Reuters poll showed, but persistent softness in the manufacturing sector points to a further slowing of the economy.
The official manufacturing Purchasing Manager’s Index (PMI) is expected to rise to 49.6 in November, up from 49.2 in October, according to the median forecast of 29 economists polled by Reuters on Monday. A reading below 50 indicates contraction from the previous month.
Analysts have attributed the shallower contraction to the post-holiday uptick in production and easing power cuts across most parts of the nation, although factors such as high raw material prices, a slowdown in the property sector and supply shortages continue to hamper the post-covid recovery.
“We expect the NBS manufacturing PMI to stay in contraction territory at 49.6 in November versus 49.2 previously, as evidenced by still weak heavy industry manufacturing operation rates,” Jian Chang, chief China economist at Barclays, said in a note on Friday.
China Loses Momentum
The world’s second-largest economy, which staged an impressive rebound from last year’s pandemic slump, has lost momentum since the second half as it grapples with a slowing manufacturing sector, debt problems in the property market and Covid-19 outbreaks. Analysts expect a further slowdown in fourth quarter gross domestic product (GDP) growth.
Power cuts have eased after policymakers moved to crack down on record-high coal prices. The State Grid Corporation said on November 7 that power rationing has ended in most parts of the nation, except for temporary curbs on high-emission industries in some provinces.
Premier Li Keqiang last week acknowledged that China’s economy faces new downward pressures but said authorities should avoid an “aggressive” one-size-fits-all approach.
China’s central bank will likely move cautiously on loosening monetary policy to bolster the economy, as slowing economic growth and soaring factory inflation fuel concerns over stagflation, policy sources said.
Factory gate inflation hit a 26-year high in October, further squeezing profit margins for producers and heightening stagflation concerns.
The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will be released on Tuesday.
The private Caixin manufacturing PMI will be published on Wednesday. Analysts expect the headline reading will edge down slightly to 50.5 from 50.6 the previous month.
- Reuters with additional editing by Kevin Hamlin