A private gauge of China’s manufacturing activity showed Chinese factories continued to expand production in October, albeit at a slower pace, signaling weaker growth momentum heading into the fourth quarter of the year.
The RatingDog China General Manufacturing Purchasing Managers’ Index, compiled by S&P Global, declined to 50.6 last month from 51.2 in September, according to a statement released Monday.
BEIJING (Reuters) -China’s manufacturing activity shrank for a third straight month in December and weakened more than expected, clouding the outlook for the country’s economic recovery and raising the case for fresh stimulus measures in the new year.
The government has in recent months introduced a series of policies to shore up a feeble post-pandemic recovery, which is being held back by a severe property slump, local government debt risks and soft global demand. But the world’s second-largest economy is still struggling to gain traction.
The official purchasing managers’ index (PMI) fell to 49.0 in December from 49.4 the previous month, an official factory survey showed on Sunday, below the 50-mark separating growth from contraction and weaker than a median forecast of 49.5 in a Reuters poll.
“We must step up policy support, otherwise the trend of slowing growth will continue,” said Nie Wen, an economist at Hwabao Trust. Nie expects the central bank to cut interest rates and banks’ reserve requirement ratios (RRR) in the coming weeks.
“Falling prices have greatly affected companies’ profits and further affected people’s employment and incomes. We may see a vicious cycle,” he said.
China’s central bank said on Thursday it would step up policy adjustments to support the economy and promote a rebound in prices, amid signs of rising deflationary pressures.
Earlier this month, top Chinese leaders at a key meeting to chart the economic course for 2024 pledged to take more steps to support the recovery next year.
Five of China’s largest state banks lowered interest rates on some deposits on Dec. 22, the third round of such cuts this year, which could help the central bank move toward easing monetary policy.
The government, which in October unveiled plans to issue 1 trillion yuan ($140.89 billion) in sovereign bonds to fund investment projects, is likely to focus on more fiscal steps to support growth next year, analysts said.
WEAK DEMAND
China’s consumer prices fell the fastest in three years in November while factory-gate deflation deepened, weighed by weak domestic demand.
“The current external environment is increasingly complex, severe, and uncertain,” the statistical bureau said.
“Some companies in the survey reported that reduced overseas orders and insufficient domestic effective demand are the main difficulties faced by the companies.”
The new orders sub-index was at 48.7, contracting for the third month, according to the PMI survey released by the National Bureau of Statistics.
Weak external demand also remained a major drag on factory activity, with new export orders index registering 45.8 in December, contracting for the ninth straight month.
The sub-index of factory gate prices was at 47.7, contracting for a third straight month, adding to signs of deflation and pressure on business profits.
The official non-manufacturing purchasing managers’ index (PMI), which includes services and construction, rose to 50.4 from 50.2 in November, supported by a recovery in the vast services sector.
China’s economic growth is seen on track to hit the official target of around 5% this year and Beijing is expected to maintain the target next year.
($1 = 7.0978 Chinese yuan renminbi)
(Reporting by Liangping Gao and Kevin Yao; Editing by Sam Holmes and Kim Coghill)
Business activity in the eurozone weakened in July, falling further below the level that marks contraction, data from a purchasing managers’ survey showed Monday.
The HCOB Flash Eurozone Composite PMI Output Index–which gauges activity in the manufacturing and services sectors–fell to an eight-month low of 48.9 in July, from a downwardly revised 49.9 in June.
The reading also fell below expectations of economists polled by The Wall Street Journal, who expected the PMI to come in at 49.7.
The numbers: An early reading of the U.S. economy in April from S&P Global showed that business activity has escaped the doldrums after struggling over the fall and winter months.
The S&P Global U.S. service sector purchasing managers index rose to 53.7 in April from 52.6 in the prior month. This is a 12-month high.
November saw business activity fall across the eurozone for the fifth consecutive month, adding to fears of a recession, the latest flash purchasing managers indexes showed.
The S&P Global eurozone composite PMI rose to 47.8 in November from 47.3 in October, according to the preliminary reading. This is above the forecast of 47.0 of economists polled by The Wall Street Journal.
“The PMI data for the fourth quarter so far put the eurozone economy on course for its steepest quarterly contraction since late-2012, excluding pandemic lockdown months,” S&P Global said in the report.
Manufacturing continued to lead the downturn, with factory output dropping for a sixth consecutive month, although the rate of decline eased, the report said. Service sector output also fell, down for the fourth consecutive month.
The November PMI data also bring some tentative good news, Chris Williamson, chief business economist at S&P Global Market Intelligence, said. The economist pointed out that the overall rate of decline has eased compared to October thanks to some easing in supply constraints and the warm weather easing fears regarding energy shortages.
Price pressures are showing signs of cooling, which should contain inflation. However, both manufacturing and services sectors are still under severe pressure, the economist said in the report.
“A recession therefore looks likely, though the latest data provide hope that the scale of the downturn may not be as severe as previously feared,” Mr. Williamson said.
The Chicago Business Barometer, also known as the Chicago PMI, dropped to 45.2 in October from 45.7 in the prior month, according to data released Monday.
Economists polled by the Wall Street Journal forecast a 47 reading.
Readings below 50 indicate contraction territory.
The index is produced by the ISM-Chicago with MNI. It is released to subscribers three minutes before its release to the public at 9:45 am Eastern.
The Chicago PMI is the last of the regional manufacturing indices before the national factory data for October is released on Tuesday.
Economist polled by the Wall Street Journal expect the closely-watched Institute for Supply Management’s factory index to barely remain above the 50 breakeven level in October.
Economists polled by the Wall Street Journal had expected manufacturing to rise to 51.8 in October and for the service sector to rise to 49.7.
Key details: In the service sector, the downturn was fueled by the rising cost of living and tightening financial conditions.
New orders in the manufacturing sector fell back into contraction territory in October. Output remained resilient due to firms eating into backlogs of previously placed orders, S&P Global said.
While price pressures picked up a bit in the service sector, the pace of the gain in inflation in the manufacturing sector was the slowest in almost two years.
Big picture: Talk of a recession sometime in 2023 has picked up in the last week. Many economists are sounding more bearish on the outlook, especially since the Federal Reserve is now seen raising its benchmark rate to 5%. However, on Monday, economists at Goldman Sachs said that talk over a recession was overblown.
What S&P Global said: “The US economic downturn gathered significant momentum in October, while confidence in the outlook also deteriorated sharply,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“Although price pressures picked up slightly in the service sector due to high food, energy and staff costs, as well as rising borrowing costs, increased competitive forces meant average prices charged for services grew at only a fractionally faster rate. Combined with the easing of price pressures in the goods-producing sector, this adds to evidence that consumer price inflation should cool in coming months,” he added.
