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BEIJING (Reuters) – Chinese factory activity prolonged the decline in August as new COVID infections, the worst heat waves in decades and a suffering real estate sector weighed on output, suggesting the economy will struggle to regain momentum.
The official production managers’ index (PMI) rose from 49. 0 in July to 49. 4 in August, the Office for National Statistics (NBS) said on Wednesday.
While the PMI beat expectations of 49. 2 in a Reuters analyst survey, it remained below the 50-point mark that separates contraction from expansion for a straight month, suggesting widespread weakness in the sector.
The survey shows the world’s second-largest economy is struggling to emerge from the slow expansion seen in the June quarter, with dangers tarnishing the outlook as peak inflation and war in Ukraine hit external demand.
“Official PMIs show a further loss of economic momentum this month as the recovery has faded and the housing slowdown has worsened,” Julian Evans-Pritchard, Chinese economist at Capital Economics, said in a note. fight to grow in the coming months. “
Raymond Yeung, lead economist for Greater China at ANZ, cut his gross domestic product forecast for 2022 to 3. 0 from 4. 0 as demand weakened.
He expects activity to be disrupted due to tighter virus controls ahead of the Communist Party Congress in October.
The production sub-index remained unchanged, but is still in contraction territory due to production being disrupted by an electric power crisis, while the new orders sub-index rose 0. 7 points.
The index of new export orders rose from 47. 4 to 48. 1, indicating a slowdown in momentum.
In particular, smaller manufacturers, which have fewer supplies to mitigate COVID-related disruptions than their larger counterparts, experienced increased pressure in August with their PMI falling 0. 3 points.
The rollback of tighter COVID restrictions in August, when new cases were reported, suggests beijing does not have the immediate goal of easing its overall COVID-0 policy, analysts say.
According to Evans-Pritchard, 41 cities, accounting for 32% of China’s GDP, are lately in the midst of outbreaks, since April, when widespread closures severely damaged the economy.
OVERWHELMING HEAT
Extreme heat and drought have also led some spaces, such as southwestern Sichuan province and neighboring Chongqing, to suspend commercial production to force households, disrupting the operations of well-known brands such as Taiwan’s Foxconn and battery giant CATL.
Some structural paintings were also suspended due to the heat, causing the official non-manufacturing PMI to drop in August to 52. 6 from 53. 8 in July.
The official composite PMI, which combines output and sectors, fell to 51. 7 from 52. 5 last month.
However, the government’s supportive policy offset weak domestic demand and aid strengthened confidence, said Bruce Pang, lead economist at Jones Lang Lasalle.
“With heat wave mitigation and government policies, factory and facility activity is expected to grow in the coming months. “
China’s economy slowed sharply in the current quarter as widespread COVID lockdowns affected demand and business activity, while the real estate market shifted from one crisis to another.
To revive the economy, the central government last week proposed a stimulus package, expanding the quota of policy financing teams to three hundred billion yuan ($43. 37 billion).
The central bank cut loan benchmark rates and reduced the lending benchmark through a larger margin.
But dangers abound as youth unemployment hits an all-time high, while emerging domestic customer inflation has weighed on further policy easing.
Economists also warn of a weakening of external demand that could limit Chinese exports, which supported the expansion in the first part of the year, offsetting sluggish consumption.
($1 = 6. 9177 Chinese yuan)
(Reporting through Ellen Zhang and Ryan Woo; Editing via Sam Holmes)