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China's factory activity contracts at steepest rate in 26 months - Caixin PMI

reuters.com · 04/29/2022 21:59
China's factory activity contracts at steepest rate in 26 months - Caixin PMI

- China's factory activity shrank at the sharpest pace in 26 months in April amid escalating COVID-19 lockdowns, a private-sector survey showed on Saturday, adding to the gloom facing the world's second-largest economy.

The Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) fell to 46.0 in April from 48.1 in the previous month, lower than the 47 reading analysts had expected in a Reuters poll. The 50-point index mark separates growth from contraction on a monthly basis.

Surveyed firms tied the drop to tightening COVID restrictions and the subsequent impact on business operations, supply chains and demand.

The rate of decline in manufacturing production was the second-quickest in the reading's history since the survey began in early 2004, beaten only by the reduction seen at the initial onset of the pandemic in February 2020.

A sub-index for new orders fell for the second consecutive month in April and at the sharpest rate in more than two years, which many firms attributed to logistical difficulties, leaving them unable to secure new orders or leading to order cancellations.

In particular, greater difficulties in shipping and the weakening of foreign demand due to COVID-19 restrictions brought about a continued drop in new export orders, the survey showed. The slump was the biggest since May 2020.

Input cost inflation remained sharp in April, though easing slightly from March's five-month high, due to virus restrictions and higher costs for logistics and raw materials in the wake of the Russia-Ukraine war.

A sub-index for employment fell slightly, with some firms pointing out that the virus restrictions had made it difficult for workers to return to factories.

"During the recent round of outbreaks, many company employees, gig workers and low-income groups have watched their incomes shrink and their lives grow more difficult. That's something policymakers shouldn't ignore," said Wang Zhe, Senior Economist at Caixin Insight Group, in a statement accompanying the data release.

China is facing the biggest test of its "dynamic clearance" approach to combat COVID-19, as authorities sealed off the mega city of Shanghai throughout April while the capital city Beijing is seeing cases ticking up each day. Dozens of major cities and hundreds of millions of people have been affected.

The outbreaks and strict anti-virus measures are expected to take a heavy toll on China's economic growth in the second quarter, in tandem with headwinds from the Ukraine war and a prolonged domestic property market downturn. nL3N2WP0UI

Nomura analysts forecast China's gross domestic product growth in the second quarter to be 1.8% year-on-year, though a number of market watchers think the economy might have contracted from the previous quarter.

The Caixin PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in China.

(Reporting by Ellen Zhang and Ryan Woo; Editing by Kim Coghill and William Mallard)