Caixin PMI: China’s Jan factory activity declines more slowly than expected

The Caixin/S&P Global manufacturing purchasing managers’ index (PMI) increased slightly from 49.0 in December to 49.2 in January, falling short of the 49.5 estimates in a Reuters survey.

Due to the termination of the zero-COVID policy, factory activity in China shrank less quickly in January than it had the month before, but worker illnesses continued to hinder productivity, according to a private sector poll released on Wednesday.

It is the sixth consecutive month that the reading fell below 50, which indicates a contraction.

The statistics stood in contrast to a better-than-anticipated outcome from an official poll that showed manufacturing activity picking back up on Tuesday. In contrast to the official survey, which mostly focuses on major, state-owned businesses, the Caixin study is more concerned with small businesses and coastal regions, which are home to many exporters.

According to Julian Evans-Pritchard, an economist at Capital Economics, “given disparities in the mix of the enterprises polled, the more modest gain in the Caixin index shows that smaller firms and exporters are facing the largest headwinds despite sluggish overseas demand.”

Due to the unexpectedly swift surge of COVID-19 infections that followed the abandoning of zero-COVID in early December, economists claimed that the worst of the economic downturn appeared to be over.

Because of the unexpectedly strong quarterly growth for the months of October to December and the fact that “China’s transition to herd immunity was faster than expected following the abrupt reopening in early December 2022,” Nomura analysts said they were upgrading their outlook for China’s economic growth in 2023.

The second-largest economy in the world is expected to recover in the first and second quarters, while long-term issues in the real estate sector and waning foreign demand will restrain expansion.

The illness wave and the weak market environment continued to weigh on consumer demand and industrial operations in January, according to the Caixin survey, with sub-indices of both new orders and output suggesting contraction, but at slower rates than in December.

Companies claimed that a surge in work backlogs was caused in part by employee resignations or absences brought on by COVID infections.

Despite claims from certain businesses that the removal of virus containment restrictions had eased supply chain stress, workforce shortages in some regions continued to impair logistics.

A sub-index of new export orders showed a decrease for a sixth consecutive month in January, though less swiftly than in December, as a result of slow global economic development and cooling consumer demand.

However, Chinese manufacturers were more upbeat about the output for the upcoming year. Since April 2021, the amount of favorable emotion has increased significantly.

Due to the end of zero-COVID, the International Monetary Fund on Tuesday significantly increased China’s growth outlook for 2023 from 4.4% to 5.2%. China’s growth rate for 2022 was reduced by the policy and its lockdowns to 3.0%, falling for the first time in more than 40 years below the world average.

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