KUALA LUMPUR – China’s manufacturing activity contracted for the third consecutive month in December, showing a more pronounced decline than anticipated.
Reuters reported that this development clouds the outlook for the country’s economic recovery, prompting considerations for additional stimulus measures in the upcoming year.
In recent months, the government has implemented various policies to bolster a fragile post-pandemic recovery hindered by a severe property downturn, risks associated with local government debt and soft global demand.
Despite these efforts, the world’s second-largest economy has struggled to gain traction.
The official purchasing managers’ index (PMI) dropped to 49.0 in December from the previous month’s 49.4, as per an official factory survey released today.
This is below the 50-mark that separates growth from contraction and falls short of the median forecast of 49.5 in a Reuters poll.
“We must enhance policy support; otherwise, the trend of slowing growth will persist,” warned Nie Wen, an economist at Hwabao Trust.
Nie anticipates the central bank reducing interest rates and banks’ reserve requirement ratios in the coming weeks, citing the impact of falling prices on companies’ profits and the potential for a detrimental cycle affecting employment and incomes.
China’s central bank recently announced plans to intensify policy adjustments to bolster the economy and stimulate a rebound in prices, responding to signs of rising deflationary pressures.
At a crucial meeting earlier this month outlining the economic course for 2024, top Chinese leaders pledged additional measures to support the recovery in the coming year.
In a move towards easing monetary policy, five of China’s largest state banks lowered interest rates on some deposits on December 22, marking the third such round of cuts this year.
China experienced the swiftest decline in consumer prices in three years in November, coupled with deepening factory-gate deflation attributed to weak domestic demand.
The new orders sub-index, at 48.7, contracted for the third consecutive month, according to the PMI survey released by the National Bureau of Statistics.
Weak external demand continued to impede factory activity, with the new export orders index registering 45.8 in December, contracting for the ninth straight month.
The factory gate price sub-index stood at 47.7, contracting for a third consecutive month, indicating further signs of deflation and pressure on business profits.
Conversely, the official non-manufacturing PMI, which encompasses services and construction, rose to 50.4 from 50.2 in November, supported by a recovery in the extensive services sector.
While China’s economic growth is expected to meet the official target of approximately 5% this year, Beijing is anticipated to maintain a similar target for the upcoming year. – December 31, 2023