Home Estate Planning China’s Jan Factory Activity Contracts Again, Dimming Economic Recovery Prospects

China’s Jan Factory Activity Contracts Again, Dimming Economic Recovery Prospects

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China’s manufacturing sector, despite witnessing a slight improvement in January, sustained its fourth consecutive month of contraction, reflecting ongoing challenges amid heightened government efforts to stimulate growth and weak demand, which casts uncertainty over the country’s economic recovery outlook

The official manufacturing purchasing managers’ index (PMI) for January stood at 49.2 points, meeting analysts’ expectations and showing a slight uptick from December’s reading of 49. A PMI below 50 indicates a contraction compared to the previous month. Meanwhile, the non-manufacturing PMI for January rose to 50.7, up from 50.4 in December. 

“Overall, the PMI data shows that China’s economy remains relatively soft, as confidence remains weak. Until forward-looking indicators such as new orders return to expansion, economic momentum is likely to remain tepid,” said Lynn Song, Chief Economist, Greater China at ING. 

“Employment remaining in contraction in both the manufacturing and non-manufacturing surveys also indicates that the job market remains weak, which will continue to be a headwind to consumption,” he added. 

The latest figure is also affected by the Lunar New Year which will fall on Feb. 10 this year, as factories may shut earlier and send workers back home ahead of the holiday. 

The figures for January may have been influenced by the approaching Lunar New Year, scheduled for Feb. 10 this year, potentially leading factories to close earlier and workers to return home ahead of the holiday, Reuters reported. 

“While we have seen numerous piecemeal supportive policies targeting specific sectors released over the past few months which have helped stabilize growth somewhat, markets are looking ahead to the Two Sessions in anticipation of a larger-scale policy package. The larger-than-expected 50bp RRR cut last week could be seen as a signal of more significant supportive policies ahead,” ING’s Song added. 

On Tuesday, the International Monetary Fund (IMF) raised China’s growth forecast for the year to 4.6%, up from the previous estimate of 4.2% in October. This revision reflects the significant fiscal support provided by Chinese authorities and a less severe slowdown in the property sector. 

Although China has yet to announce its growth target for 2024, policymakers are expected to maintain a similar target to last year, around 5%. However, the official announcement is not expected until March. 

“There were some gains in economic momentum at the start of 2024, at least judging by the modest rise in the official PMIs in January. Admittedly, the survey readings are still depressed by historic standards, but this seems to partly reflect sentiment effects – in previous months the hard data held up better than the PMIs had suggested,” noted Julian Evans-Pritchard, Head of China Economics at Capital Economics. 

“We think growth will recover further in the near-term thanks to policy support. But the current approach to stimulus won’t address the economy’s structural problems, which will continue to weigh on medium-term growth.”

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